Clive Palmer Right about Interest Rates (Well Half, but More than Other Pollies)

lethological on 07/05/2022 - 12:07

Seeing the yellow billboards promising 5 years with interest rates fixed to 3% everywhere I am shocked to be thinkibg Palmer may be onto something.

But in usual fashion he's in way too deep for it to be meaningful.

I believe a 3% Cap on interest rates is a good thing for a subset of loans. If our goal is increasing new home ownership and supporting housing affordability.

The catch I think that is missing:
This should only be for first home owner or net portfolio of less than 1 million.

This would provide the safety net for those that need it the most. While allowing market forces to operate upon those that have made poor financial decisions and motivate a deleveraging of their positions.

What does OzBargain think?

(Personal disclosure this limited enrollment to the cap would not benefit me personally)

Poll Options

  • 426
    Lazy Fair, let the market do it's thing
  • 36
    I agree with Palmer
  • 28
    Prefer a limited cap for those vulnerable
  • 21
    Other
Financial Federal Election

Comments

  • diddy50 on 09/05/2022 - 10:18
    +3

    If you think house prices are bad now, imagine what this 3% cap would do. Plus to inflation.

    Palmer is a populist fool

  • Zondor on 09/05/2022 - 10:43
    +1

    Clive is doing this to get your vote, then do nothing about it if he actually gets in.

    He exists to pull votes from other parties to get the libs back in.

  • HappyPuppies on 09/05/2022 - 10:45
    +1

    Say you set the price of petrol at $1, and the market values it at $2. Your going to have more demand than supply (without subsidies), in addition supply would go to other markets where it is valued more highly. In addition you lcreate arbitrage opportunities for local traders, or the black market.

    Something for capital flows. If Au caps loan interest rates at 3% and rates of return in the international markets are higher. I would arbitrage it all to hell. Local capital supply would dry up, or demand for the AUD may also fall as capital takes flight elsewhere. That's abit of hyperbole, but something to that effect could take place.

  • MisterEd on 09/05/2022 - 13:04

    Pricing error

  • Drakesy on 09/05/2022 - 14:10

    Tell me you haven't studied economics without telling me you haven't studied economics.

    Palmer has about as much idea regarding economics as he does running a successful political party.

    I.E not much.

    When a prime minister/dictator starts to make economic decisions regarding cash rates and inflation it rarely works out better for the public.

    Just need to look at the inflation in Turkey which is currently at 61% because the Prime Minister thinks it's better for the long run.
    Capping it at 3% is a non-starter. It's treating the symptom and not the cause, kicking the can further down the road.

  • MikeKulls on 09/05/2022 - 15:02

    Higher interest rates might actually make houses more affordable. This is the problem with the middle class, when they get extra money they effectively give it away, ie if they can afford to pay more for a house then they will.

  • ihfree on 09/05/2022 - 15:12
    +3

    Ridiculous idea which the UAP knows it will never have to implement. It's just there to attract votes which will be used to advance Clive Palmers interests.

    The lowest tier is getting Scomo back into office. IIRC, there are leaked texts to that effect from the last election.

  • AngusD on 09/05/2022 - 15:43
    +1

    Like most of the idiocy palmer pumps out, this is a bunch of infantile nonsense designed to appeal to the people who are dumb enough to consider voting for him in the first place. Never trust people who come peddling simple solutions to complex problems.

    Interest rates are going up to try and get inflation under control. If you artificially keep interest rates down then you will just be allowing inflation to run out of control. Any money you might save on your artificially cheap mortgage will just get eaten up by rising prices of everything else. It will also continue to prop up the over-inflated values of property, which is overvalued because rates have been too low for too long.

  • conza on 09/05/2022 - 16:27

    Not an economist and if a real one would like to shoot down my idea, happy to be rebutted.

    The problem I see, is the cash rate adjustment is one of the few tools the RBA have to influence consumer spending patterns, and the banks claim they're unable to match these rates due to their cost in borrowing from each other, and outside of Australia.

    What I think 'would help' would be a cap on the difference, the major banks can be from the official cash rate. If we accept that they need to always be higher when it comes to borrowing, then I'd like to see the official cash rate 'be closer' to the real rates that people pay.

    For example, Bank A is offering 2.30% for their home loan interest rate, the official cash rate is 0.35% in May 2022. So Bank A says that it'll cost them, up to 1.95% more to borrow.

    What is we legislated to make this 1.00% or 1.50% as a maximum? This would give the RBA more flexibility to have a higher rate for returns on foreign investments and loans, and it would be less dramatic to home owners with mortgages.

    • greatlamp on 09/05/2022 - 20:13
      +2

      The cash rate is the rate the RBA offers money to the Banking sector.

      That's the entirety of it. Foreign investments and loans have nothing to do with the RBA.

      Unless Clive Palmer is proposing the RBA get into the business of offering loans to retail customers (he isn't) the only way a 'cap' on interest rates will work is by funding the difference with your tax dollars.

      How do you feel about subsidising the home loans of the top 20% of the country?

      Did Clive Palmer mention anything about limiting these capped interest rate loans to low income earners? No? What a surprise

      • conza on 09/05/2022 - 20:48
        +1

        Firstly, no interest in Clive Palmer or his empty policies he has no interest in, just the general topic overall. So we may be in agreement there, subsidising the home loans of the top 20% of the country? Well I don't care for it, but mostly I don't care since it will never happen?

        Secondly again yes, the foreign investments/loans don't have anything to do with the RBA, I mean to say the reverse though, the RBA's actions influences foreign investments and loans.

        It's a knock on effect, when the RBA raise the official cash rate, then local lenders raise their interest rates, and when local lenders increase the interest rate on loans, any of those loans that are not domestic (foreign), then call upon higher repayments from foreign lenders, and my understanding is, this is also primarily how varying interest rates relate to the value of say, the Australian dollar, compared to other currencies around the world.

        My main point was really about the buffer of the banks being say, 2%, the means there's a 2% barrier between what the RBA does and how that impact is felt by domestic borrowers, which is why I was hoping if that barrier could be reduced, we may be able to have a more precision monetary policy. Nothing to do with Clive Palmer really from me.

        • greatlamp on 09/05/2022 - 20:52
          +2

          Apologies, I didn't intend to accuse you of being a Clive Palmer voter.

          A cap on banking profits would need to be compensated with taxes, otherwise you are essentially proposing a nationalisation of the industry.

          As owners of real estate are generally the wealthiest segment of our society, this policy disproportionately benefits the rich.

          Not only does this increase the gap between the wealthy and poor directly, it would take tax dollars away from other projects, which would generally benefit the poor.

    • xavster on 10/05/2022 - 01:32
      -2

      Hi,

      For those not familiar with banking, the banks don't borrow money to lend to people. This type of maturity transformation used to be taught in economics but isn't actually true of modern banking any more. Maturity transformation is still the name of the game for RMBS and some credit unions.

      When you take out a mortgage, that money doesn't come from anywhere. They enter the loan amount into your loan account. And secure that loan amount against the house. That's it. Money has just been created out of nothing.

      You might wonder why banks need to borrow money or collet deposits then? It's due to the Basel banking accord. Banks in this system must hold a certain amount of liquid funds as a ratio of their loan book. This is called a capital equity tier (CET). Different banks will have to satisfy different Tier ratios depending on how risky these banks are. i.e. a community bank will generally take on less risk compared to an investment bank.

      for example: a CET1 bank lends out $1B dollars against $1B worth of assets (houses) they must at least hold $151M in reserve. That reserve amount can come from deposits or loans from other banks against assets the bank owns. This is how the RBA influences bank lending, by charging the overnight cash-rate when banks lend to each other via the RBA's banking platform. The RBA's platform is a closed loop.

      edit: added an apostrophe

      • trapper on 11/05/2022 - 11:54

        When you take out a mortgage, that money doesn't come from anywhere. They enter the loan amount into your loan account.

        They still need to pony up the cash though.

        You didn't get your house for free, remember why you got that big mortgage in the first place? Someone needed to be paid.

        • xavster on 12/05/2022 - 03:05

          Hi,

          We currently use a fiat monetary system, under this system, money is borrowed into existence. The transaction is recorded in the banks books via double entry accounting, On one side is the security (i.e. the house) and the other is the loan amount created by the bank (i.e. the money). Once the money is withdrawn from the account, it becomes real and enters the real economy.

          This transaction is justifiable based on the loan contact. The bank can create that money based on the asset (the house) they've just put on their books that's worth the amount they've created.

          So to answer your question, they don't need to pony up the cash, they create the cash. And yes, you don't get the house for free, as a mortgagor, you are the one that have to earn real money and give it to the bank.

          Now you might think why doesn't the bank just create money for themselves? They can't, each transaction must have a counter party. For them to create money, there must be someone on the other end to borrow it and have an asset to underwrite that loan (i.e. a house).

          I know this concept can be shocking for some people, but if you think about where money actually comes from, it'll make much more sense. And if you've travelled to places that doesn't have a reserve bank or central bank, you'll find that individual banks issue their own banknotes (aka cash).

          Source: own an Accounting/Financial advisory firm, did my MFin thesis on credit creation and Australian real estate pricing.

          For those interested in the plumbing of the banking system, here is Prof Werner explaining how things work under the hood in a very simplified example.
          https://www.youtube.com/watch?v=EC0G7pY4wRE

          See my explanation about fiat money creation here:
          https://www.ozbargain.com.au/node/697033#comment-12065425

          • trapper on 12/05/2022 - 14:54

            @xavster: When you borrow money the bank does need to come up with the actual cash though. It's not just a number on a screen.

            • xavster on 12/05/2022 - 18:09

              @trapper: Hi,

              If you are referring to withdrawing physical cash, the banks purchase RBA banknotes (printed by the RBA subsidiary Note Printing Australia PTY LTD) via a Banknote Distribution Agreement. Only members of the BDA can purchase notes from the RBA.

              This is where the CET reserve comes into use. The banks will use its' CET reserves to purchase bank notes from the RBA for distribution into their Branches and ATMs. This is one of the reasons banks are required to have CET reserve ratios. The CET reserves can be made up of customer deposits, retained profit earnings, loans from other banks, funds raised from selling bonds overseas and debentures domestically.

              Our economy has moved away form cash to the point where majority of 'money' is all electronic. Only about 3% of global 'money' is cash.

              I do want to point out that while the banking system is a source of monetary creation, it is also a source of monetary destruction. Once a loan is fully paid off, the amount loaned is technically no longer in circulation and the loan contract is discharged. The money that was created has now been destroyed in an electronic sense. The interest earned by the bank is what remains and is the banks 'profit'.

              Also need to point out overall this is actually a pretty good system, it allows the economy to grow and shrink dynamically and take advantage of market forces to balance itself. It can be subject to manipulation. Prof Werners book "Princes of Yen" goes into very good detail on how central banks can be manipulated.

  • cashews on 09/05/2022 - 17:55
    +3

    Vote UAP so that we don't get Chinese tracking microchips implanted under our skin to stop us stealing toilet paper.

    https://www.unitedaustraliaparty.org.au/video/dystopian-tech…

    • Drakesy on 09/05/2022 - 17:58

      Geez they went deep down the rabbit hole.

    • ihfree on 10/05/2022 - 12:11
      +1

      I'm sure Clive would be more than happy to get in on data mining with the CCP if he could make enough profit.

  • serpserpserp on 09/05/2022 - 19:14

    This would provide the safety net for those that need it the most. While allowing market forces to operate upon those that have made poor financial decisions and motivate a deleveraging of their positions.

    So if my house rises in value to $1,000,001 all of a sudden i made a poor financial decision and have to deleverage?

    I think you'll find that the people with houses under 1 million in value will often be leveraged to the hilt.

  • MessyG on 09/05/2022 - 19:28
    +5

    The Greens are by far the true disruptors when it comes to house prices. But no one will vote for them because so threatened by the loss of dominant interests, the media has parrotted the same 4 lines about them successfully for the last decade, and the populace just repeats them over and over.

    Clive is the car salesman that will sell you a dud while telling you it's a Ferrari, and a small proportion always believe them and find out the hard way.

  • greatlamp on 09/05/2022 - 19:56
    +3

    Clive Palmer only cares about Clive Palmer. Don't be surprised he proposes policies that don't make any sense, he has no interest in making any positive change to this country.

    There are only 2 ways to put a cap on interest rates

    1. Communist style legislation - make it illegal for banks to charge market rates.
      This is a pipe dream

    2. Compensate banks for offering below market rate loans with our taxes….

    So Clive Palmer is telling the uneducated that he is going to make their lives easier- by spending their tax dollars on subsidies for the banking sector- which will primarily benefit the wealthy.
    Well done.

    I'm sure he will cut funding to schools and hospitals to balance the budget, don't worry the rich don't use public hospitals or public schools.

    our corporate media shills will explain how this is actually a good thing for the loyal A Current Affair and Today Tonight watchers across the country.

    The only real alternative to the 2 major parties is the Greens. They are serious about winning seats and helping the poor.

  • anonymous01 on 09/05/2022 - 21:13

    This is like offering a starving person some food, but the catch is your water will be taken away. Don't just read one part of the policy and jump the gun. Learn what kind of person he is. Learn what kind of business he has run, how did he become a billionaire? People like that play on other people's emotions and vulnerabilities to get their votes, then desert them when they are no longer needed. Don't fall for such cheap traps.

  • weezlebub on 09/05/2022 - 22:31
    -6

    Well, if you would like to know more, ask away …

    I am the current candidate sitting for the seat of Hindmarsh in South Australia (yes, you can now all dox and stalk me, I've been with randoms destroying my front yard for the past 2 months - thankyou Green candidates).

    So I initially has my hesitations about how this could be feasible. but I ran it through out national campaign manager and he explained it a little bit like this:

    "The government can set the interest rate at 3%, if the international lending institutions can't lend money at that rate, our federal government can lend the money to the banks. By doing this, the government can actually generate money by lending money to banks to lend to their customers."

    While this is kind of cool, their regional tax rates and nuclear power policies are a lot more interesting to me :)

    • ihfree on 10/05/2022 - 00:11

      Sure…

      Would Clive be partnering with the CCP for the reactors? You know, how he did in with mining? Can nuclear reactors be built in time for Net Zero?

      What will your housing policy do to house prices?

      Why's your party preferencing liberals in marginal seats? Is Clive helping his mates, you know as an ex-liberal?

      Thoughts on Joh, Clive's involvement and the federal government stripping away free speech?

      What makes you think your party is legit and not a scam designed to appeal to the uneducated?

      What's with the text messages?

      Has Clive been vaccinated? Was he treated with ivermectin? Should I have the right to be treated with ivermectin?

    • ihfree on 10/05/2022 - 00:15

      https://mobile.twitter.com/chaser/status/1522867000531615745

      Old mate got a bit aggressive here. Should he have his membership revoked?

    • greatlamp on 10/05/2022 - 08:55
      +3

      By doing this, the government can actually generate money by lending money to banks to lend to their customers."

      And how do the banks make money? Do they just do it for free?

      Good job for entering politics to try an make positive change. Please pick a party that isn't entirely comprised of snake oil salesmen.

    • gromit on 10/05/2022 - 10:52
      +1

      So what you are proposing is make inflation even worse by printing money to fund this and making housing even less affordable?

    • xavster on 10/05/2022 - 12:26
      +1

      It's obvious this is not a sane macro-economic policy. It's just a way to lure ordinary people into voting for UAP with cheap loans. But eventually such a policy will require the debt to be paid back, and that will be the tax payer who foots the bill.

      The macro economic effects of such a policy is already well known, you get inflation, currency devaluation and eventually economic collapse.
      See the Turkish Lira for a real 'live' example, Mr Erdogan is fixing interest rates below what it needs to be and look how well they're doing.

    • Vote for Pedro on 10/05/2022 - 12:30
      +3

      How do you feel about clive palmer not paying worker entitlements and the forcing them to sign gag orders to not say anything bad about him?

      Also, is this policy not communism?

    • ihfree on 12/05/2022 - 21:20

      Three days on and it's just like Clive getting elected to Parliament - a no show.

      • Vote for Pedro on 12/05/2022 - 22:23
        +1

        Remember. Clives only goal is for the libs to win. Ge doesn’t care if his minions get anything out of it. He doesn’t care they’ve wasted time and money campaigning. He doesn’t care about any of the promises he makes.

        Votes for UAP and One Nation flowed on to the LNP, bolstering the party's dominant position in Queensland.

        Mr Palmer said this was the plan all along.

        "The goal for the United Australia Party was to ensure the Labor government did not get into power," he said.

        "This has been achieved."

    • SBOB on 14/05/2022 - 07:55

      What's the selection criteria to get nominated as a UAP representative in an area?
      Apart from proving you've posted anti Vax related material on social media, is there any other selection requirements apart from just offering?

      How much does Clive kick in for local advertising?

  • rektrading on 10/05/2022 - 08:03

    So many Australians are worried about real estate when they see a +0.25% rate hike but have they checked their pension funds?

    The SPX got rekt on Monday and the XJO is getting smashed by the pain 🚂.

    Enjoy the 💉🛀 and keep fiat 💵 🙌 to BTFD.

    • mdavant on 10/05/2022 - 08:29
      +1

      How has bitcoin been going over the past 6 months?

      Hard to print money now inflation has caught up.

      • rektrading on 10/05/2022 - 08:55

        I've been DCA almost every day around $40,000 since 🇺🇦 vs 🇷🇺 and every day last week leading up the FOMC.

        I've limit orders at $30,000 and will set more LO at 🔑 support.

      • rektrading on 10/05/2022 - 09:03
        +1

        Hard to print money now inflation has caught up.

        The USD is in 💀 🌀 that the feds can't 🚫. They've a $30T debt that they'll never pay back and the amount keeps rising.

        The feds will turn the 🖨️ back on soon enough to keep the economy going.

        • donkeydoc on 10/05/2022 - 13:19
          +1

          There is no USA, just run by corporate interests, debts will keep increasing, government contracts will be let until collapse!

    • gromit on 10/05/2022 - 10:56

      Even so those smashing were small compared to how crypto got decimated in the last 2 days.

  • turbochris on 10/05/2022 - 08:12
    +1

    Vote 1 for FREEDUMB!

    • mdavant on 10/05/2022 - 08:30

      I have a strong belief that this freedumb comes at a cost.

  • tonsta on 10/05/2022 - 09:29

    If he gets in, there goes the catering budget.

  • jzx100 on 10/05/2022 - 09:55
    +1

    Vote 1 Clive Paramigiana

  • giventofly on 10/05/2022 - 12:51
    +1

    Lazy Fair, oh boy

    • blint000 on 11/05/2022 - 11:29
      +1

      My thoughts exactly.

      Laissez faire I believe OP was looking for.

      • lethological on 12/05/2022 - 17:46

        Yes, its great for the nit picks to miss the point and not let it be. If you were looking to add corrections with the crude economics term why not put laissez-faire in your response?

  • donkeydoc on 10/05/2022 - 13:17

    This guy is purely selfserving, either he wants to win votes and/or this policy will directly benefit him.

  • mwahahaha on 10/05/2022 - 14:16

    This idea is idiotic. Assume that interest rates rise above 3% who's going to pay to keep the interest rate for homeowners to maintain their cheaper mortgages? The total value of mortgages in Australia according to Statista it's $1.3 Tillion.

    Assume that interest rates go from 3% to 3.25% which would cost Australia $3.25 billion per year. All to support some of the wealthiest Australians have a discount (which they may or may not need) on their mortgages that are already heavily discounted.

    • rektrading on 10/05/2022 - 16:10

      The fix is nobody gets a loan.

      Done.

  • Herbse on 10/05/2022 - 14:53
    +1

    Has anyone called the UAP to ask how they plan to do this? Or anything?

    All their contact info goes to voicemail

    • Cluster on 10/05/2022 - 15:04
      +1

      The pamphlet I received in my letter box had no details, apart from saying Clive Palmer and his team have superior economic management skills which will somehow make it happen.

      UAP know they'll never have power in the lower house so the policy and details don't matter. All they have to do is convince enough people that a magical 3% is possible to win one seat.

  • Dack Smith on 10/05/2022 - 19:16

    You really think old man Palmer, with his billions in unused funds, is going to look out for the little guys?

    People must be even stupider than prehistoric times.

  • pogichinoy on 11/05/2022 - 10:31

    The govt cannot control interest rates nor can they enforce interest rates that the bank can charge.

    You'd be silly to think they can.

  • trapper on 11/05/2022 - 11:46

    Why would a bank give you a loan that they will lose money on? They won't.

    So forget about any new mortgages if the interest rate is capped at an unprofitable figure.

  • morebunnings on 11/05/2022 - 13:02

    If this happened, and the RBA interest rate went above 3%, people would be incentivized to borrow the max% LVR on their house and put the money in a savings account or other investments to earn a profit.

  • foursaken on 11/05/2022 - 13:47
    +1

    Mucking about on the demand side of the ledger is what got us to this situation in the first place.

  • MisterQ on 12/05/2022 - 05:04
    +3

    Let me just preambile this with the fact that I am an economist, and have been for over 40 years.

    Palmer is a self-serving moron - This is the man who managed to run Coolum into the ground, who had to get a massive government handout on his Nickel Refinery. His mouthpiece managed to Bankrupt a successful family business. The man who has not one but two jets parked at Brisbane airport, gathering dust. Who got his last jet repossessed, but still does ego things, like fly a jet from Coolum to Coolongatta so that he can go to a Sanctuary Cove restaurant.

    The same man who sold a mine to the Chinese then bleated about them and is now trying to do it again.

    There is a reason why the RBA is kept separate from Government control with respect to monetary policy. ANd he wants to piss that to the wind.

    He wants to cap interest rates? He also wants the first $30,000 in repayments EACH YEAR to be tax deductible. This will only service to drive up property costs. 30 year mortgage - typical - $30K, that's $900K in repayments tax deductible - this will only create wealthy predatory landlords, which will drive up prices, and reduce availability.

    Oh, and he wants to repatriate one trillion in offshore superannuation investments to Australia to fund infrastructure projects - there is a reason why fund managers invest offshore - better returns - with his policy, your super returns will drop.

    Oh, and he wants to fund things with a 15% mining tax on foreign miners. Yup, this is the man who is being blockaded by the WA Government on selling off more of Australia to the Chinese, again. Mining Tax - ask John Ralph, author of the Ralph report on Business taxation if mining taxes work. Ask Wayne Swan, Rudd's bumbling offsider, if he managed to get a MIning tax to work. It's a nice idea, but far better (and worse) than Palmer have tried and failed.

    The same man who has been spamming Mobile phones, TV's and Bill boards with his messages, yet when he was in the HoR last time, was routine caught snoozing in the chamber…

    Hell no.

    • mdavant on 12/05/2022 - 15:50
      +1

      Yeah, but think of the cool memes

    • Herbse on 16/05/2022 - 09:15
      +1

      You had me at self serving moron. I didn't need to read the rest, but I did. Thanks.

  • Herbse on 16/05/2022 - 09:14
    +1

    https://www.google.com/amp/s/amp.smh.com.au/politics/federal…

    UAP putting the Libs 2nd on their how to vote card. Despite claiming he wanted to put them last.

    Another fail for the people who believe he is an alternative to the big governments. He's just another Liberal shill trying to keep his business interests in the green.

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