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Well said Scamp. (your reasoning on why RBA should not decrease interest rates)
Lets see if the RBA does what it needs to do or bows to political pressure.
Lets see if the RBA further destroys the long term health of the nation by bowing to political pressure and reducing rates.
I'll bet they go the wrong way, reduce rates in September for short term gain and compound and prolong the problems.
Scamp
Lost a lot of credibility with your most recent statements.
No one can make a reasonable assessment of whether RBA will decrease rates or not as they do tend to make mistakes and bow to political pressure. US a third world country? – US minimum wage is $6 per hour, they have a very low currency, they are recognising their problems, the bank deposits are insured to $100,000 per depositor and the Role of any Federal Reserve is to ensure the stability of the financial system. I feel the US will fix their problems eventually and return to be an ever stronger powerhouse, but not without considerable pain from those who borrowed too much – they will all be wiped out.
The RBA should not have decreased rates in 2002 – 03 but they did. Now look at the problems.
Anyway, high interest rates put pressure on the housing markets and resetting loans deepen the problem..But it is losing jobs and rising unemployment that finishes the job. Higher interest rates slows the economy, increases borrowing costs for companies and individuals, company profits deteriorate, companies cut costs and sack people. Unemployment rises. This is the economic cycle or clock. A country needs to have a recession every 5 years or so on average to keep it healthy and stop unrealistic expectations from developing.
Australias problem is we have been living in a perfect world for 15 years and we do not think a recession is a normal part of the economic cycle. We have tried to rewrite the economic text books (because it is different now.)
It is not different now!
Whether the RBA bows to political pressure and reduces interest rates or not will not stop the property market from crashing as people have taken on too much debt and now people are going to lose their jobs and not be able to service their debt. The damage has already been done.
It is not rising interest rates that crash property markets, it is rising unemployment after massive expolsion in debt and after massive price gains.
Australia is squeezed between a rock and a hard place.
Any reduction in interest rates will cause the $A to fall and this will cause imported inflation from all the imports we are sucking in. We have stagflation. Slowing economic growth and rising cost push inflation. The oil price will fall, but the falling $A will negate this effect and put upward pressure on petrol prices.
Rock and a hard place. – Now the pain must happen to correct our excesses of the past.
There are only 3 ways debt disappears – paid back – taken back – or bankruptcy.
Here it comes. What most believe will not happen here. The inevitable. Markets are just that – markets – driven by fear and greed.
Scamp
Thank god someone knows something about investing.
I agree with you entirely, being a professional investor myself.
Unfortunately, as people have short term memories, people buy investments based on emotion on what has been doing well. This means they are buying high.
All investors should know the basic principal of investing : buy low / sell high. or, do not buy high / do not sell low.
Prices are only low either after they have fallen in price a lot or after many years of not going up in price. Prices are high after they have gone up rapidly over a relatively short period of time due to economic bliss.
Buying property in 1998 to 2000 was a great idea as the price did nothing for 10 years. You could buy a house for less than you could rent one. Interest rates were very, very low.
Now the opposite has happenned.
Interest rates have gone up, speculators have driven up the price of houses, individuals have taken on way too much debt in the belief property prices cannot fall. The economy is slowing, the unemployment rate will start to go up, people will start to lose some jobs.
Bang
The house of cards will fall big time. When property prices crash, people with debt lose everything.
No one has been listening to the warning to Australia from the IMF (International Monetary Fund) that Australian Property prices are 40% overvalued. They did not listen to the warning in the US either.Investors – do your research – but do not get advice from property developers, banks or real estate agents – get it from economists and asset allocators.
Matt
Be very careful going to education seminars about property investing. Most of these seminars use education as a tool to get you to buy a property from them at a much higher price than market prices, usually pocketing many of tens of thousands of dollars if you sign up. They will usually also get you to finance through one of their associated lenders and also get valuations from one of their associates. I cannot say whether or not Ironfish fall into this category.
There have been plenty of warnings in the media about companies who use education seminars to sell you properties at inflated pricesand perhaps then even guarantee rental income, by paying you back some of your own money.
Use google and look for the following articles printed in the Australian newspaper.
Spruikers blamed for builder collapse
TV journo spruiks low-profit scheme
Location: it isn't an untold trusim
Rental crisis 'over' as vacancies rise
If you want to invest in property, it is best to do your own research and not buy through a seminar. The education provided in these seminars is usually designed to get you to purchase through them, often for a price $60,000 or so higher than what you could do yourself.
Please respond to this post after you have read these articles.
John
