Australia’s official cash rate has remained at record emergency lows for twelve months now, a setting not seen in over five decades. But signs are now emerging a hike in interest rates is imminent to quell the dangerous and unsustainable Sydney property bubble.
Former RBA board member Warwick McKibbin, now a member of the CAMA RBA Shadow Board designed to mimic the actual RBA board spoke to the ABC’s Peter Ryan.
McKibbin believes the RBA has cut the official interest rate too low and cheap money is creating a dangerous housing bubble in Sydney. “It is pretty clear that as interest rates rise back to what is considered normal, that there will be some adjustment in the housing market” remarked McKibbin.
Inflation is now at 3 per cent, the top of the RBA’s comfort zone. He believes the RBA will have to start increasing interest rates within the next 6 months, to more normal levels.
The Bank for International Settlements (BIS) warned in its 84th Annual Report that record low interest rates were likely to fuel a new global financial crisis, as low interest rates fuelled rampant asset price speculation.
» RBA shadow board warns of housing bubble risks – ABC AM, 4th August 2014.
Ironically, interest rates for interest bearing deposits in all our major banks have all recently increased from 3.7% to 4% for Reward Saver Accounts. Term Deposits also appear to be edging upwards.
Maybe a sign of things to come.
I just can’t fathom that interest will rise. Ask anyone who is in contact with several small businesses and they will tell you that business is tough, or impossible in some sectors. How then can inflation be at the top end of the RBA’s spectrum?
The answer of course is in the way they measure inflation. Smart, honest economists acknowledge that inflation is actually the effect of an increase in the currency supply……Foreign cash pouring into Australia????? Has the same effect as increasing currency…..
Now…If we raise rates…In the face of the Euro crisis, a rapidly slowing USA, a slowing German economy, Japan holding of default, Argentina defaulting, China slowing rapidly with asset price collapse……
What the hell will happen when AUSTRALIAN rates rise? Let’s send our cash to Australia…Pushing up the dollar again, extinguishing the last gasps of manufacturing, local employment continues it’s collapse.
It’s an absolute stinking situation the Central banks have created….Sorry, I’ll rephrase that: For the average citizen, the central banks have created an absolutely stinking situation.
For the elite, it’s the scenario they have been planning all along.
First by inflation, then by deflation our children will wake up homeless in their own country…….
I’m putting my nose against the grinding wheel even harder. Harder than I ever thought I would need to…But this fiat, fractional reserve, free-trade, currency system we are living through is proving to be a true mongrel. It’s not just going to impoverish the poor, it’s gonna take most of the damned country down.
One more example of incompetence, inconsistency, directionless, disorganization and lack of foresight from the RBA. The RBA has never placed the interests of Australia as their sole priority but only that of the political world and its quest to win elections. They are a disgrace. The RBA should really be called RBP or Reserve Bank for Politicians. This institution has been selling us out for a long time and unfortunately the voter is still asleep to this fact.
Totally agree Theo. Just look at the ratings success of property porno like The Block Glasshouse.
i agree also about interest rates staying more or less where they are. why would Oz do anything different then any of the other western nations?
if anything, they will drop again in the future if/when things really go south.
by that time, like the US and EU, things will be pretty bad for many and the drop in interest rates wont matter to most who are on the edge.
If this plays out according the the book (aka, history) then we’ll all be blaming foreigners and the poor for this mess and it’ll finish in a really big war… which the central banks will fund both sides of.
Signs of this happening are already appearing.
Wow. Just, wow. 1 in 3 Australian households don’t have $1,000 in the bank. And can’t raise $3,000 in case of an emergency. This was on the radio this morning, from ME bank.
So, let me get this in perspective.
We are told the average income in Australia is ~$72,000p.a.
Yet 1/3 of households don’t have 75% of ONE WEEKS pay in the bank.
And they are gonna raise rates? This will be spectacular.
Stop buying anything you don’t need and build your buffer as a priority. This will get crazy. It may not happen soon, but you can’t fight these facts.
There is an alternative to lifting interest rates. The BoE in July introduced macro prudential policy which capped new home loans at 4.5 x household income at 15% of total loans. NZ has a HLVR loans of more than 80% of value capped at 10% of new loans and Australia is currently running at circa 40% per APRA data. Canada has used macro prudential policy for several years as have about 20 other countries. It works, it’s quick and it takes the pressure off using monetary policy to address asset bubbles and easy credit in sustained low interest environments.
@Alex – The RBA has said numerous times it does not support macro prudential controls.
I can remember when the RBA was dramatically cutting rates that there was some concern it was not working. Later analysis showed households with mortgages only made up something like 33% of the population, so by cutting rates you helped a small portion of the indebted, but took away from the savers, i.e. the retirees who then had to stop spending, hence the net effect was minimal or even potentially negative.
Rate cuts also inferred the economy was still in bad shape, hence negative reinforcing.
You have to wonder if a single rate rise is not a bad thing. It could boost confidence, signalling that the economy is on the mend, and encourage spending. Savers and retirees could loosen the purse strings (ever so slightly).
More importantly, the RBA’s jaw boning hasn’t been working, so I suspect property investors might take more note of an actual rate rise, than some one liner in the RBA minutes that no one reads.
The concept of what is the ‘normal’ official cash rate is open to debate. The average OCR since the RBA split from the CBA is 5.55%, over double what it is today. I know a lot of first home buyers who have brought in the past 12 months tell me they will be fine provided interest rates don’t rise, but have a 25 to 30 year mortgage! Most are complacent and a pre-emptive rate rise sooner or later might do a world of good.
The only negative I see is the Australian Dollar – it will shoot up. But when you have a single leaver, and refuse to implement macro prudent policy, you can’t fix everything.
I have exactly average salary. I’m going to beat the system, screw the banks and the politicans who are trying to screw me. I’m going to save and buy a house outright with cash.
The implosion of the Australian economy when interest rates rise will be spectacular. Debt is not siloed in one area of the economy. It is everywhere and linked – small business fails followed by default on home mortgage, default on hire purchase and credit cards, etc. The decline will be precipitous as will the cost of bailing out the banks. Big mistake in underpinning bank bad behavior and in 2008 wasting billions on propping up housing.
http://truth-now.net/confinance/
http://truth-now.net/bancorruptcy/
prepper
@Chocolate,
I could not agree more!
Two jets going down from a country which is strategically placed right next to the Strait of Malacca which is Chinas oil route.
No wonder Chinese warships are patrolling down that far.
I was reading this last night.
http://www.opednews.com/articles/Top-Financial-Experts-Say-by-George-Washington-Bankers_Financial-Meltdown_Political_World-War-III-140801-376.html
http://www.paulcraigroberts.org/
https://www.youtube.com/watch?v=-JzmK3-tIvQ
prepper
Obviously the RBA is stuck between a rock and a hard place and decided to keep the prime rate on hold today. This way they are not raining on the real estate parade and business borrowers. The big 4 however are threatening to take mortgage rates lower as they fight over market share. They are using cheap offshore funds and can afford to gamble while guaranteed by the taxpayer. This of course will all end in tears when the foreign money printing stops and interest rates rise.
These ultra low intrest rates have all the hallmarks of drug addiction. Just like property speculation, it’s fun at first, makes you feel all powerful and affluent. When everyone around you is doing it, it re enforces the belief that all is ok.
You become accustomed to this lifestyle…when you need more of your stuff, whether you can really afford it or not you just seek easy credit. The banker or dealer need the return buisness to maintain their bottom line too. Turns out everybody is using “Tic”. Then the discounting stops.
So we are faced with, how do you fuel a habit you could never really afford and at the same time pay back the credit at the price it should have always been? On top of that what if you lose your job?
Perhaps some were playing fire all along. Like a drug habit mixed with complacentcy, there are some brutal realities at the end of the line.
Interest rate rise? Not on your nelly mate!
If Australia is the first country to do it (thereby setting off a global chain reaction of copycat measures) it will be a ruddy miracle. I’m not holding my breath…
@ Well said Matty.
“First by inflation, then by deflation..”
Can you please open the knot bit more. Do you mean providing easy credit first & then got strangled from the Fed.
Totally agree to Chocolate & Patrick as well.
Anyone making any predictions of precisely when the Australian Housing bubble will burst? Have thought property was vastly overvalued for years but it just keeps going up. Saw a similar thing in UK when I just thought ‘this is nuts’ but it just kept going for another three years then.
My understanding is that this is a total house of cards entirely based on cheap credit from printed money as all players seek to devalue their own currency to make their own goods cheaper by printing. My own reading (eg Roubini ) indicates the GFC was much worse than the Great Depression and yet we have followed precisely the same path. If so the next step will be the bond defaults which lead to an unstoppable interest rate climb, wiping out the economy and leading to war. Is there any way out?
Does Glenn Stevens have vested interests in property? I don’t know how to check his investment portfolio as the congressmen.
Apparently the congressmen have common vested interests in housing market.
@Millimouse – A 2010 report showed “Of the 200 occupations classified by the Australian Tax Office, the employees at the Reserve Bank topped the list with respect to their investment property exposure.”
@Jas2u – The line Matty quotes, I believe, comes from a letter the 3rd President of the United States, Thomas Jefferson wrote in 1802 to Secretary of the Treasury Albert Gallatin:
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
yes admin,
unprintable money that we have used for almost 6000 years
gold silver
prepper
@ Rupert
New Zealand has raised interest rates 3 times in the last 4 months to curb inflation. So Oz will definitely not be the first.
http://www.abc.net.au/news/2014-06-12/nz-lifts-interest-rates-again/5517840
@Jas2u
Admin knows that line well. It’s accuracy blows me away every time I read it.
Another quote, that’s as good today as when it was written is from President Rosevelt after the 1929 crash
“Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency.”
Well, worth reading the entire script: http://historymatters.gmu.edu/d/5057/
If you want an understand of how the central banks will strip the nation of it’s prosperity I believe you must watch https://www.youtube.com/watch?v=iFDe5kUUyT0 (this is episode 4)
Watch the entire series. There are many fantastic series out there, but that youtube clip above explains the currency system, and why you feel poorer than ever, even though you probably work more hours than ever, have more productive tools and technology than ever and are more frugal than ever. The system has been built that every dollar in existence is a promise that the government will tax you in the future. It made me sick the first time I watched it; and I’ve known the system is wrong, but this laid it out so clearly, so obviously that there’s no denying we have been fooled.
But the good news is: You’re here because you want answers. We all do. But like a true hollywood script, we have to have faith that history will repeat itself for the >6,000th time (yes, there have been over 6,000 artificial currencies…and they all fell back to a value of $0.00).
So, sadly, next time your thinking of buying the must have consumer item….Remind yourself, that when the dollar implodes will you be glad you have the latest widget? Or be glad you did something productive with that cash? I’m not saying stop spending (small business owners like me need you to keep spending with us: and we are eternally thankful), but I am saying, if your on the Titanic, wouldn’t it be smart to arrange an exit strategy?
@24 Thanks Cui Bono, I didn’t know that. Faith restored. Let’s hope the rest of the world takes note.
Thanks Admin @ Matty.
Already following M Maloney,P Schiff,G CelenteGreg Hunter, ZH, MB & some more. Yes, you are right. Btw finding it hard to exit with cash cos of bail-ins. Seems like nowhere to hide but can reduce risk.
@Matty
What you say is on the money.
@Jas2u
Another good explanation for
“First by inflation, then by deflation..”
Here
http://members.sonsoflibertyacademy.com/sons-of-liberty-academy-4/module-7-modern-control
Our Commonwealth of Australia Constitution enacted by Queen on the 9th of July 1900 states:
A State shall not coin money, nor make anything but gold and silver coin a legal tender in payment of debts.
But we seam to be operating under a Constitution of a corporation registered in the us called Australian Government.
Info here
http://truth-now.net/
please consider signing this
http://www.petitionbuzz.com/petitions/aussiegold
prepper