obes is sort of right, in that the RBA's thinking is that the worst of the crisis has past so they want to rewind monetary stimulus.

"In underlying terms, inflation should continue to moderate in the near term, but now will probably not fall as far as earlier thought...With the risk of serious economic contraction in Australia now having passed, the Board's view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker."

http://www.rba.gov.au/MediaReleases/2009/mr-09-25.html

but i think infi is also correct in saying that having fiscal stimulus continue while monetary stimulus is being withdrawn is a very precarious situation to be putting ourselves in. it can be difficult enough to predict the effects of one policy shock on an economy, having two concurrent and opposite policy shocks is exponentially harder to predict and understand.

the main reason the RBA is lifting rates now is because of their inflationary outlook for the future. like i've posted before, typical macroeconomic models suggest the monetary policy multiplier effect from a rise/fall in rates won't be felt for at least 2-3 months, will increase in strength to somewhere between 8-12 months and will decline but still be present up to 18-36 months later - depending on the partiuclar model. this is the RBA's focus, they are mandated to keep inflation between 2-3%. it's pretty easy to make the argument that the fiscal stimulus has contributed to the RBA's expectations of inflation.

remember that australia had an absolute dickload of stimulus. interest rates were cut by 4% causing household debt servicing obligations to drop from 15.4% to 10.3% of disposable income. the fiscal stimulus package was 2.5% of GDP making it one of the largest, if not the largest, in the OECD. this caused a 9% increase in houshold disposable income over the year from June 2008 to 2009... which is pretty crazy. that sort of increase in disposable income doesn't happen in boom times let alone recessions.

infi and alt-f4 are also right in saying that the wholesale banking market is still crippled. most of the people i know in commercial banking/investment banking/funds management that i've spoken to are still absolutely reeling from the GFC.

so what am i getting at here? well i suppose it all comes down to whether you think the GFC has finally pissed off or not. if it has, then the RBA is likely doing the right thing, albeit probably a bit too aggressively for my liking.

if the GFC hasn't left us alone, then the RBA could very well be setting us up for a world of hurt.

Wouldn't it be expected that the market has already calculated into and as a part of its current rebound the further stimulus already committed to by the government? To withdraw this stimulus would not have the impact of merely not providing the economy with that stimulus but also undermining its forward calculation that the market has already included into itself hurting it doubly, if this is the case and I only speculate, then using the RBA to mitigate the effect of the stimulus seems most prudent.

Or aren't markets efficient and all knowing like I heard?

I'm of the opinion the full effects of the GFC haven't hit yet since many banks have not acknowledged the loss of value of houses they have repossessed. Collateralised debt obligations were the primary culprit behind the GFC and as such the housing market has dropped substantially but the banks are counting that house that was worth $1 mil when it was sold as $1 mil on the balance sheet still. In the US there are many houses sitting empty because the banks don't want to acknowledge the loss by selling the property at market value.

A much smaller problem in Australia no doubt, but a second wave of the GFC may hit with a wave of bank insolvencies.

That being said, if the market rebounds quickly enough this issue will never eventuate. it's a big gamble and it will be interesting to see how it all plays out.

Enough reality, I'm going to play Dragon Age.

meh it's 0.25%, neither here nor there to me

Sure imitation, I see your point, but if said hermit runs a help desk, and said people 'living it' have economics degrees and work in industry where it is actually part of their daily job to understand these issues, I'd go with people 'living it' or even more appropriately 'working it' :)

As for stimulus vs monetary policy, the problem is 2 fold. The RBA were raising rates 18 months ago when they should have been dropping them - however we had a treasurer literally egging them on to raise rates to back up his political rhetoric, we also had a government 'razor gang' that was actually increasing overall budget spending. Whatever anyone tells you, the RBA is not completely independent, especially when influenced by market commentary.

They realised their mistake and slashed rates at an unprecedented rate, but our government saw this as not significant enough and embarked on inflationary spending policies ('stimulus') to ensure that at the first sign of a recovery, rates would need to rise almost instantly. There is no doubt stimulus was the right call, but the level of stimulus, the poor execution of it and the pork barrelling of the entire 'labor demographic' with direct cash handouts was irresponsible beyond reproach and will see us all paying for it for a long time to come, no matter who is in government. We would need a 30 year boom with Howard & Costello type policy to undo the damage done in the last 18 months.

What would have been more satisfactory is for rates to be slashed, perhaps to even lower levels, government stimulus to have been about 30% of what it was, and better implemented. We would have less debt, and rates would be able to remain low for an extended period giving long term and sustainable stimulus to the economy as a whole, intead of having to rapidly raise rates to a 'normal' level, perhaps prematurely, to combat inflation directly caused by unsustainable government spending.

oh and I might be 'living it' but rates don't effect me, I'm locked at a 2 year old rate that is costing me $$$

What would have been more satisfactory is for rates to be slashed, perhaps to even lower levels, government stimulus to have been about 30% of what it was, and better implemented. We would have less debt, and rates would be able to remain low for an extended period giving long term and sustainable stimulus to the economy as a whole, intead of having to rapidly raise rates to a 'normal' level, perhaps prematurely, to combat inflation directly caused by unsustainable government spending.

QFT

dammit Fuckles, you stole my usual response to interest rate threads :D

No, I'm just amused by your commentary on an issue you know nothing about. Out here in the real world, some people are actually affected by government policy - whether it be Labor or Coalition.

"the real world" ... hah

The real world of politics is a targeted response takes months or years and countless pointless committees, white papers, green papers and independents holding up processes over stupid issues.

"an issue you know nothing about", strangely taggs seems to (and taggs thinks I am a retard) disagree and that at least part of what I was saying is right ?

But spidz, forgetting all that... you know that deep down infi's political rhetoric was incorrect. The RBA isn't trying to "DAMPEN the economy"... they are still stimulating it, all they are doing is stimulating it less!!!! And you know it (if you don't know it... join the real world and read the RBAs press releases!), and the fact you chose to attack me with some petty "real world bullshit" actually shows either your political preference or some pettiness towards me.

Unfortunately the rhetoric from the RBA seems to be all about returning to normal levels as soon as possible. And the government is slowly removing the stimulus (if you can't see that "join the real world" !!!) if they simply stopped it all that would be a "policy shock" of a similar order tears as the RBA going "hai gais interest rate is 5%".

And I am not sure the banks will return to the carefree lending days any time in the next decade or 2 ? But to say the banks aren't lending any money is also seemingly not true.

hey i don't think you're a retard, you just say some retarded things sometimes ;] (jokes mang)

just wanna point something out though

if they simply stopped it all that would be a "policy shock" of a similar order tears as the RBA going "hai gais interest rate is 5%".

imitation said something along similar lines as well.

the majority of the 2nd round of fiscal stimulus has already been delivered. it started back in feb/mar 09 with the cash payments. so when i, (and i'm assuming others as well), refer to continued fiscal stimulus i'm more referring to the government stating in the press that they will continue stimulus into the 09/10 budget. i don't think removing that fiscal stimulus would be destabalising at all - the details of how it is to be delivered haven't even been announced yet (that i know of anyway). it is also expected to be around 1% of GDP in the next budget, or it was last time i checked. i personally think that's unnecessary given current economic conditions.

I just assumed (probably wrongly) it was stuff they had already signed off (eg. a bunch of community works) on or documented promises ? Not really "new" stimulus.

that's what they had planned back when the 2nd round of stimulus was rolled out earlier in the year, an extra ~1% of GDP in the 2010 financial year. the outlook was much worse back then though, so i'd imagine they've revised their plans.

a quick googling seems to suggest that the government is planning on winding back the stimulus in 2010 fin year now, though the details are a little hard to find.

edit:

then again, maybe they aren't. it's a little difficult to figure out exactly what their plans are - most articles are just swan fapping over the stimulus or convincing everyone that if it's withdrawn we're all gonna die. and the rest are just people hating on the debt - there isn't really any clear indication as to what fiscal stimulus is yet to be injected and how exactly they plan to do it. i think the school building program got delayed into 10/11 but i'd really like to see more details.

http://news.theage.com.au/breaking-news-national/stimulus-is-being-unwound-swan-20091013-guqk.html

here the government says they are rewinding the stimulus, but then they go on to say:

Mr Rudd said if the scheduled 2010/11 stimulus investments were withdrawn overnight, the impact would be reduced growth of 1.5 per cent and a loss of 100,000 jobs.

i'd be pretty sceptical of that statement personally. and if stimulus is still being spent into 10/11 i wouldn't call that 'rewinding' myself. i just want to see some details and less political fappery :(

last edited by taggs at 10:05:02 05/Nov/09

Look, I think the real point to make here is, Costello wouldn't have let this happen.

So we aren't arguing that the current stimulus can be withdrawn, because we agree that's not possible and also not a viable option given that it has already been predicted by the market?

We're disagreeing on further stimulus which at this stage remains to be seen if it will be included in next years budget which isn't even close to being released, surely the assessment to include it or not will be made by the treasury as close to the budget release as possible.

Now for all the sage like advice in this thread, I also know no one here predicted GFC so give me a 6 month economic outlook and I promise you're still just flipping a coin.

I also know no one here predicted GFC

I did.

So I'm guessing you got an easy cheap loan prior to the collapse, shorted the market and retired to some private island?

Nope I paid down all my margin loans and stayed in cash, repaying debt down further, while all the donks got wiped out.

But spidz, forgetting all that... you know that deep down infi's political rhetoric was incorrect. The RBA isn't trying to "DAMPEN the economy"... they are still stimulating it, all they are doing is stimulating it less!!!! And you know it

I didn't actually read infi's post, but yes they are still stimulating it, unfortunately they can't stimulate it as effectively as they could, due to inflationary pressures caused by an interventionist government who couldn't resist a vote buying exercise despite an already massive support base.

the fact you chose to attack me with some petty "real world bullshit" actually shows either your political preference or some pettiness towards me.

Not really, I was just stirring you, but I am guessing that you still are metaphorically 'hiding your money under the bed' and haven't taken the jump yet.

Unfortunately the rhetoric from the RBA seems to be all about returning to normal levels as soon as possible.

They have to, they have been forced to by the massive pressures created in the economy as a result of irreponsible government spending that will affect all of us for the wose for decades to come.

And the government is slowly removing the stimulus (if you can't see that "join the real world" !!!) if they simply stopped it all that would be a "policy shock" of a similar order tears as the RBA going "hai gais interest rate is 5%".

Damage is done, the RBA probably should go in a 2% hit, due to what I've mentioned previously - but it won't happen.

And I am not sure the banks will return to the carefree lending days any time in the next decade or 2 ? But to say the banks aren't lending any money is also seemingly not true.

They might be lending money to Mum's and Dad's to buy houses, but legitimate forms of finance with minimal risk is now alomost impossible to source in some industries due to the interventionist policies created by the government that don't allow the market to operate freely and return to a normal level. I have a project currently at work that stacks up to any measure that has ever existed as far as funding goes, its a 'relatively' small amount of $130 million with an LVR of 60% and not one bank will even consider it, 18 months ago all 4 of the biggies and the rest would have sent me 17 virgins and their first born child to fund the very same deal. These are the deals that create jobs and stimulate the economy in a sustainable way, and they are falling over everywhere due to the environment created by our government.

Hi spidz I really don't understand what it is about the current economic environment which would cause banks not to make low risk commercial, I'm not being facetious I don't understand enough about the dynamics at play here and I don't think this thread has cleared it up for me terribly much. Surely a profitable loan is still a profitable loan for a bank?

You would think so, but while government has been trying to boost consumer confidence they have created a vacuum in business confidence and banks find it difficult to source funds offshore due to our now debt laden economy.

Previously, as an example - you could get funding on a residential developments (high rise) with ~50% pre-sales, which was probably a 'bit loose' but now you might even not get funding if you have 100% pre-sales, which is essentially in business terms, a risk free project to fund.

The deposit guarantee, that has frozen so many other seconary financiers - should eb te first thing to go.

Once again government meddled has fucked the market.

The deposit guarantee, that has frozen so many other seconary financiers - should eb te first thing to go.

also dongs

Dongs should be the second thing to go? :-O
I don't think you're wrong about the first thing but surely amputations aren't the great fiscal policy response.

heh I still have alsodongs.com

I remember you posted your 'prediction' of the GFC. It was just the usual bunch of vague bullshit that you always post so you can point back at it and say "looks I am so smaert" when really you are one of the biggest fuckwits of all time.

So should we all fix our rates or leave them variable guys??
Whats the dealio yo

I remember you posted your 'prediction' of the GFC. It was just the usual bunch of vague bullshit that you always post so you can point back at it and say "looks I am so smaert" when really you are one of the biggest fuckwits of all time.

Is that code for 'yeah I think you predicted it, but I'm not sure because you used a few big words and I generally didn't really understand anything you wrote' ?

Either he predicted it or not, any prediction is a vague one - especially in economic terms

I love how this place just drops to the lowest level of insults the second you disagree with someone
It's like we've all known each other for years

Variable Fn and build a Pontoon already. There seems to be more bogans at the public ramp every time we go there :(

It seems on the back of what's been said in this thread that more rate rises are likely not to mention that reserve banks own goal to have rates between 5%-6% so shouldn't it be a definite case of fixed rates?

I've known fn and scooter for a couple of years, but every intimate moment is still as exciting as the first

Either he predicted it or not, any prediction is a vague one - especially in economic terms

Sorry but that is another case of bullshit.
I could predict that it might rain in the future ... It's a pretty safe bet that it will ... when and how aren't important!
Infact if I predict every week that next week there will be a massive storm eventually I will be right!

Prediction is one thing, doing something about it is another.

I bought an umbrella, was that the right move obes?

Only to shield you from the tears in this thread.

And back to the topic, Assuming they go back to non emergency rates. To fix now the rates would have to be up to about 9% or so by the end of 2011 to break even on a 2 year fixed loan? I think it is a little late to go fixed now.

the interest rate market has factored in some fairly extraordinary rates rises. current variable rate is 5.61% and the current 2 year fixed rate is 7.19%.

4 years ago i locked a commercial bill in at 7.77% and thought i was on a good deal.

there are two aspects to fixing an interest rate: trying to beat the market by lowering your interest costs; and hedging for cashflow i.e. you want to fix your interest cost over a period of time with no surprises.

so what is your motivation?

fpot is just jealous he didn't predict the GFC. it's quite an accomplishment imho.