Reserve Bank of WBC hikes

As expected, Westpac’s Gail Kelly has taken guidance from the Governor of the Reserve bank of ANZ, Mike Smith, and raised rates on variable mortgages by 10bps:

Westpac has followed ANZ’s lead in increasing its standard variable interest rates after the Reserve Bank’s decision on Tuesday to leave rates on hold.

Earlier today, ANZ lifted its variable home loan and small business interest rates by 0.06 per cent.

The move will take its rate to 7.36 per cent per annum, while the bank lowered its three-year fixed loan rate to 5.99 per cent.

The change in ANZ’s rates will take effect next on February 17.

Meanwhile Westpac announced a 0.10 per cent increase to its standard variable home loan rate to 7.46 per cent, with a spokesman saying a rates hike is “never easy”.

“Our move today reflects the increase in costs of banks raining money,” spokesman Jason Yetton said.

After the ANZ announcement, analysts expected at least some of the other institutions to take the opportunity to claw back some extra profit margin.

Treasurer Swan does not seem to have grasped the situation:

Mr Swan said the bank’s customers would be justifiably angry about the rate hike but added that with the abolition of exit fees last July they could now “walk down the road and get a better deal”.

Mr Swan said that by the end of this year one million households would hold mortgages without exit fees.

“I think ANZ customers will be absolutely ropable with the ANZ,” Mr Swan told reporters in Sydney on Friday.

“The fact is that the major banks in this country are very profitable. Their net interest margins are back to where they were prior to the global financial crisis.

“We do need a strong financial system. We do need profitable banks. But what we need here is competition.

“And what I say to Australians who are observing these decisions, this one from the ANZ, is you do have the capacity to walk down the road and get a better deal.”

Asked if he expected the other major banks to follow ANZ’s lead, Mr Swan said “we’ll have to wait”.

“But my comments apply equally to anyone else, who should take a decision such as this,” Mr Swan said.

Ah, right. Go where? Two down, two to go.

9dfbd4ea 53b6 11e1 Bd97 b0fb7fa113a9_SVR Media Release Feb 2012

Comments

    • I’m starting to like you again, GB. You better shut up.

      In all seriousness, though, this is radical stuff. I would not be at all surprised to see a quite nasty response in housing markets. The “RBA will save us” mentality is huge and has just been royally trashed.

      The RBA erred this week.

      • H&H “this is radical” is an understatement. i was goin to post this on trading day but will do it here. reading that SoMP statement this afternoon and comparing it to the RBA statement on tuesday you would have thought it was written by different people. the RBA is mega confused about whats going on (becuase they still dont see a housing bubble busting) and markets, stock, currency and property do not like it when monetary policy makers are confused and give mixed signals. but these announcements today from ANZ and WBC are without parralel. not only is the RBA confused but they have also just lost control of monetary policy as we have known it. thats how i see it anyway and im sure thats how markets will see it. a black swan perhaps? dunno, but i certianly didnt see this one comming. maybe an emergency rate cut from RBA next week to offset this? who knows whats going on anymore?

        why didnt they cut? no excuse whatsover based on the data. if unemployment spikes on thursday and based on the roymorgan and other ancdotalal evidence suggest it will, Glen stevens should be sacked immediatly.

      • I’m inclined to agree. It does smell of paradigm shift. As the trolls that hog Property Spectator like to say, “if you can’t trust the RBA, who can you trust?”. It kind of reminds of the late eighties, post deregulation, when the banks all went hog wild chasing market share because nobody really knew what to do. 90s recession ensued. This is not so big but has that same feel of being cut loose and floating free where anything could happen…WBC just trashed the ANZ softly, softly approach.

      • Maybe the RBA plans to cut by 50 bps next time and get a bigger WOW factor?

        Maybe (more like obviously) they knew banks cannot pass on the cuts and wanted to avoid the controversy in the media?

        Perhaps ANZ gave a “better” 3-year rate to encourage first home buyers?

        Just some thoughts.

      • I think some ppl here are over-reacting to the banks trying to recoup some margin due to their increased funding costs… They are just doing what any business would do under the circumstances…

        Lets put some perspective to the numbers… A 0.10% variable rate increase to a $250k loan is $250 pa, otherwise $4.81/wk. This is after having rate cuts in recent months equating to $1250 pa, so the net benefit is still $1000 pa…

        The (supposed) housing bubble isn’t going to pop from this… So buy one less latte per week and let some sanity prevail…

      • The (supposed) housing bubble isn’t going to pop

        The KoolAid has left a nasty stain around your mouth. In the pinball game of life, your flippers seem to be a little further apart than most. (joking, take it easy!)

      • “so the net benefit is still $1000 pa…”
        This isnt the point, the economy is tanking and everything is increasing in price, gas, electricity, petrol, road ta, toll fee, insurances, food, council rates, Lattes, etc etc, I wonder what straw it will be that breaks everyones back?

      • Jagster, what about those mega mortgage mugs who are already on a diet of baked beans and Maggi? Starve for a day? 🙂

      • Unfortunately the mega-mortgage mugs NEED to be slaughtered 🙁

        Perhaps they’ll learn next time not to go all in… It’s sad for them but that’s how a healthy economy should operate… No bailouts or handouts.

      • +1 Jagster. Mik, what you’re correctly identifying there in terms of rising prices is inflation. Anyone living in the real world can feel it, but it seems to be overlooked by current ABS methods. Historically, we raise rates to combat it and flush out the ineffiencies and weak players – an act of financial darwinism. The current financial bleeding heart mantra seems to be support those who’ve hijacked the system through greed and an apparent risk free invincibility.

      • Silly Silly woman is she trying to kill the golden goose? Smith sent a shot across the bow of the rba and kelly follows up by torpedoing sentiment, truly the annabelle cabbe of australian banking.

      • An enigma – puts St G in a death spiral and then winds up with the top gig… might pause for longer to wonder on the angle.

      • Exactly right aj! Vote me for dictator…there’s a few people getting rounded up the first day and she is on the list!

    • I hope to god you’re right GB as I’m going to an auction tomorrow mainly to have a gander and it’ll be highly entertaining stuff to watch it fizzle worse than a EU Greek “solution”.

      As bad as this may sound, this couldn’t have happened at a better time…

      • Given that feb and march represent the nadir of the retailer cashflow cycle i’d say it couldnt have happened at a worse time. Nov 2010’s bank rate rises above the rba’s absolutely saughtered demand. Given banks and trade creditors are already especially vigilant around this time i expect the further worsening of sales momentum will see some pull the plug when they otherwise might not have.

        In short expect to see more mass layoffs soon.

      • OC, I was more talking in narrower terms, specifically with my attending an auction tommorow in search of some twisted amusement.

        Beyond that I agree with your assessment – this is a kick in the balls for many after having been kicked in the guts already.

      • Please do keep us informed!

        It’s brilliant – I heard so much how the RBA will say the day. Dear. Oh dear.

      • Oh and PS I think this will be the time Rudd makes a ditch for the leadership i.e. once the bubble starts to pop – and the deniers run for the hill. That is, he will act just as the economy starts to slow dramatically, reminding us how he kept the economy going – weaving in his legacy about how his first home vendors’ boost keep things afloat.

        Then call a snap election to make something of the holiday period.

      • perhaps rudd will try to make a comeback screaming ‘now is not the time for a surplus, we must bail out the working families’ this would get him some votes. if the voters fall for it then i would be too embarrased to show my face outside aus

    • Diogenes the CynicMEMBER

      +1 GB.

      This combined with the news on China makes the stockmarket look pretty toppy.

      • “makes the stockmarket look pretty toppy” i disgree with this DC. the stock market has already crashed twice in the last 4 years so i dont reckon it looks toppy on any other than a very short term time frame. the RBA is now going to have to cut and cut hard as all the work done by the last 2 rates cuts has just been undone. the lower rates will underpin stock valuations but yes, unfortuneatly we are mosy certainly back in unchartered territoty and the stock market wont like it initially. buy the dips

    • GB you got it wrong. None of the real estate agents will report it so the clearance rates will be at least 60% sold because only 1 or 2 will report it

    • Perhaps the banks have realised that credit growth will keep slowing, so they’ve decided to extract more from their current book until they can think of something else. Maybe they expect the Govt to support those who are close to defaulting? It is funny that the banks now pretty much admit that they control Australia’s monetary policy.

  1. Ah the cost of capital, nice to see people starting to respect it for a change. Problem is l would have 20 mates with mortgages north of a mill, who are great blokes but have no idea about what drives asset prices?
    Concern to me is that with the cost of capital likely to normalize at a higher rate on average than the last 20 yrs, that a lot of growth in companies and asset prices just won’t occur.
    Being early 40’s with little options in terms of buying growth assets, sht l might have to start saving, and as we all know, it’s bloody hard to save.

    • Finally, a calm collected response. Agreed that growth driven by debt is going to slow. Perhaps a need to focus on innovation and productivity to reduce the cost of equity? A wake up call for Australia. Just a passing thought.

      • Yes to 8mill Seekvalue and LF

        Let’s suppose the the RBA goes for the big WOW factor and drops rates 50 points. Let’s suppose the WOW is successful (????) what would happen? Savings go into rapid decline, borrowing takes off, The RE market and retail pick up. Bewdy ripper mate…problem solved!
        Fair dinkum when did the world finally go off its axis?
        In this scenario we have less deposits and more spending. CAD rises and the banks have to borrow a much greater proportion of their funds from external sources. Rates go even more out of kilter with RBA attempts. Back to square one.

        Of course (sorry to be boring) no one is factoring the inflationary tsunami that is just starting to rise somewhere out in the ocean. (Maybe Stevens is not as stupid as many think and is actually looking ahead…just not with enough urgency given that he is a little hamstrung)The whole thing becomes a nightmare.

        The situation is intractable. The answers lie back in time. We are now witnessing the outcome of 50 years of nil saving consumption/debt over-indulgence by the western world. Growing prosperity and power in the ‘developing’ (LMAO what a concept)world is just going to tighten the vice.

      • flawse, even if they were to cut 50 bps(unlikely IMO unless Europe causes havoc by then) in March, it would probably prop up retail and RE modestly only, now that people have grown to be more cautious. I’m sure it would have some impact though, which would be good. It’s in no-ones benefit to see a complete halt in RE and retail.
        I agree that the RBA is likely to be aware of not only the funding costs but also the inflationary pressures and they were most likely already aware of the recent inflation spike in China as well.
        It may well be that with the most recent IR decision, stagflation has officially arrived.

      • Goldilocks…yes I agree with most of that. My overall thinking is that we are in a bind. Some advocate (or maybe ‘think’)a 50 cut by RBA. I’m trying to get across that we are at the beginning of a major shift in the Tectonic plate of economics in the western world.
        We can tinker around the edges but the fundamental problem remains.
        And yes I see no alternative to stagflation. If you have any thoughts on how to invest in such an environment I’d surely appreciate your sharing them!

      • That’s a tough one really flawse. I think investors across the globe are trying to figure that one out. I’m not experienced enough to offer anything worth reading on how to invest but I can share my thoughts.
        If I were in a position of someone like Marc Faber I’d invest like him which was (6months ago approx) along the lines of 25% cash, 25% gold, 25% property and 25% equities. More recently he has been anti cash and talking up equities. But keep in mind he talks to US folks mainly and Aus is not where US is right now.

        If you are not like Marc Faber but more like an average ma&pa investor like myself, then it’s just risk management and picking the lesser evil.
        I’m not particularly concerned about inflation eating away savings right now, regardless of the IR adjustments. Waiting to see whether something drastic happens in Europe or not while keeping Marc Faber’s words in mind.

        As I’ve said before, I think stagflation is poison for Aussie house prices due to the debt levels. Without the debt, property would be the best investment in stagflation (based on that Oxford report I posted a while ago). In other words, once the correction is well under way, I would consider buying property. In the meanwhile equities, term deposits and PMs look more interesting. IMHO, with equities and PMs timing is important just like with everything else. Whenever someone says “don’t worry about timing or price because the trend is up”, I become suspicious. IMO The point is to be aware of the trend, the strength behind the trend, the factors influencing the trend and to react to changes in time.
        -A real cynic these days. I wonder why!

        Disclaimer: no financial advice whatsoever to be taken from my comment. It is posted with no understanding of economics nor trading, just for Sunday afternooon amusement and maybe good laughs for the pros.

        Any other thoughts?

      • Thanks for your time and effort Goldilocks.
        I’ve had PM’s for a long time. I should have more but I’m playing a timing game in which I’m fast running out of time.
        I’m fairly heavily invested in some small mining that the Chinese have taken some interest in. Unfortunately every time I get in one it ends up in Court over one thing and another. However I’m hoping it will sort out in time.
        So stagflation with housing prices going nowhere or even declining nominally….or decling heavily. I don’t own a house but I’m thinking a house non farmland…then again I’m getting a bit old and broken for the farming racket! Financially my ag mates tell me to go fishing instead!
        I think the Chinese money is going to keep coming here for the next few years. All those that I know and know of, with serious money, are looking to unload USD. Some of those are Govt and semi-govt corporations.
        I’d normally be thinking crash in housing, commercial RE etc..maybe there will be a serious one short term. But if the Chinese keep bringing money here we may come out of that. Unless RE is downright killed as an investment, which is not being proposed, we will go for RE and consumption again.

        About 6 months or so ago my son wanted to some out of the money options on the Dow being up 50% (a range from 20 to 50)in two years. I think it was a good bet. It would have cost almost nothing. Unfortunately we couldn’t get set.

        So Euro and US to keep printing. The inflation targets will be stretched. 3% then 5% then 7% etc will be OK. Even now some are calling for higher inflation targets. Note I think it is insanity but this is where I think we are going. Who will pull the trigger and when?

        Where are interest rates then? I’m tipping that the economic intelligensia will then say …well we should only count domestic inflation which isn’t so bad. Interest rates won’t alter our imported inflation. They’d be right of course. It’s just a pity they didn’t use that argument through all these years where imported inflation has been negative! OUr debt situation would not be so drastic and our economy in much better shape.
        Anyway teh point is I’m thinking, that for one reason and another, interest rates will lag inflation by a long way. Not helpful for the average bloke but I think you are exactly right. Timing will be of the essence in going back to property (of some kind) and again equities.

        If I sound confused I am!!!!!! Fundamentally we are not looking at economic arguments. We are trying to look into the minds of a bunch of politicians, central bankers, and economic advisers who don’t know where we are, don’t know how we got here and sure as hell haven’t a clue what to do from here. So good luck with figuring out what will happen next!! 🙂
        Cheers and thank you for the discussion.

        Note, just for perspective, my main business is importing and wholesaling into the recreation outdoor industry. Best not to even start to contemplate what my future is there. We just keep doing what we are doing as best as we can.

  2. Imagine if the high cost of capital causes bugger all growth in asset prices over the next 20 yrs, sht there will be a lot of blokes working in their 70’s?
    Hard thing for me is that it sort of forces you to take more risk to chase growth.

    • In that case invest in a known risk and that is yourself. Start a business – the easy money days are over.

      • Sound good but very hard.
        I just don’t think people don’t get the fact that without capital appreciation largely via the price of cost of capital, most people could not save their way to retirement.

      • Starting a business is hard but rewarding – I’ve done it twice. And still doing it.

        I was just making the point that making money through asset inflation is over. Money was printed and prices went up. It was non productive. So we’re sorta back where we were in the 70’s. No growth with inflation except this time it’s commodity inflation, fuel, power etc – not wage.

        And people will have to save for retirement. Just like they used to.

  3. I just got back from a visit to the “Chadstone Lifestyle Precinct” and it was DEAD. It was 7pm on a Friday evening and there was absolutely no other customers at The Good Guys (about 8 staff on duty) and JB Hi Fi had about 5 customers in store. Even the massive Harvey Norman would have been lucky to have had 20 customers – around one customer per staff.

    On a positive note, the East Malvern Dairy Bell ice cream shop was reasonably full.

    Retail is DEAD in Melbourne at least. Long live retail.

    • UE, I was in Chadstone last month, on a Friday as well – empty, dead empty. I was certainly surprised because only 3 years ago we first visited Chadstone when we first moved to Melbourne. Hardly any space to walk! Seen volume decline dramatically towards end of last year.

      • Sell their shares short….

        Disclaimer: I am not licenced to give any kind or advice on anything, whatever you decide is up to your self and the risks that you are happy to take.

      • Based on what I’ve seen of Newcastle the cashed up bogans up there will be the last to realise the party is over as well – and will scream the loudest when the do!

  4. In an effort to reciprocate this little act of economic vandalism perhaps we should reward our newly ascended corporate overlords by way of a general credit strike – no new loan apps for ANZ or WBC for a month or two is all we’d need to see who’s precious about maintaining margins afterall.

    If only it were so easy.

  5. The RBA made the correct call on the data to hand. I can’t believe though that the RBA did not think the banks would take this action. They signalled such from the time ANZ announced it would assess rates at a time separate from the RBA and act as the ANZ saw fit.

    Surely the RBA is not so ivory tower to have been blinkered to this outcome. There must be some other issue at play.

    As you say above HnH “cut loose and floating free” (just like our exchange rate). I like it for the entertainment value.

    • Thinking about it over a glass of wine, what if. What if the RBA knew exactly what the bank action would be and has accommodated the banks to the extent that the RBA holds this month, banks increase rates independently, RBA lowers next month, banks hold.

      A bit of New Year’s gift?

      • Not sure about that – it does look like the RBA is losing control. It’s probably a good thing but not a good look.

      • I just putting it out there – mainly because I just don’t buy that the RBA has been caught unawares. The RBA knew the action the majors would take and also knows cost of funds a real issue. Doing it’s bit to help.

      • I suspect they thought there was some chance the banks would go but were prepared to take the risk.
        Fact is RBA are unrepentant bullhawks that cant get their heads around why spare capacity in the economy is rising rapidly despite completely unprecedented private sector mining and energy capex boom.
        Of course if they bothered to genuinely understand:
        – the shift in people’s risk tolerance (and therefore desire to deleverage);
        – the rising proprtion of the expenditure that is represented by imports;
        – the rising foreign equity ownership of the projects that lead to a greater income account deficit;
        – the advances in technology and changes in our trading partners that have increased the openess of the australian economy and hence its sensitivity to the strength of the currency (e.g internet impact on the retail sector, improved communication networks and rising education levels overseas that make knowledge based work offshorable);
        then they would understand why they have been continuously too optimistic for the last two years in their forecasts for economic growth and employment.
        – the impact o

  6. “Our move today reflects the increase in costs of banks raining money,” spokesman Jason Yetton said.

    More like maintaining increasingly raining profits.

  7. Here’s a different more positive perspective on the RBA decision and its consequences:

    [http://www.abc.net.au/news/2012-02-10/janda-rba-does-first-home-buyers-a-favour/3821656]

    I must admit that I agree. Some of us seem to completely lose perspective on how insane our housing market is and how much it distorted our economy. If anyone expects that we can change it in a gentle “goldie locks” way they are wrong. This is not how you change people’s habits and deep beliefs. It’s time to send a strong signal that it’s not the role of the RBA to get overleveraged borrowers out of trouble every time things become a bit shaky, the impression that is definitely created by the MSM and politico-housing complex. Even if the RBA reduces interest rates next month people will perceive their decisions as less predictable. This is the way I expected them to play it and stated it on this and other forums that they would keep their cool and not rush with easing the way they did it during the onset of the GFC.

    • Great words of wisdom there JPK. This thing needs a total reset…but it’s not possible. We will continue to take the option that is least painful in the short term. The long term will get worse and worse. Reality is arriving.

    • now if we didnt have a central bank setting the cash rate, would this stop people scapegoating or looking to people to blame/help them out for their financial illiteracy? Would that send a more blunt message?

  8. ‘Ah, right. Go where? Two down, two to go.’

    Best point I’ve seen anywhere today H&H. They’re expecting the second tiers to be the big saviours. I sense another huge RMBS purchase coming. How’s that surplus looking?

    • RMBS purchases have no impact on the Budget surplus – the Government is simply exchanging one type of financial asset (cash raised from bonds issued) with another (RMBS).

      In fact, because the return on the RMBS should be higher than the cost to the Government of issuing debt (assuming RMBS doesn’t default), the Government will actually improve the size of the surplus by making such a purchase.

      Sounds like a win-win for Swanny – and a tough temptation to resist.

  9. Failed Baby BoomerMEMBER

    Well done GB, you have had a few wins lately. You are gaining a fan club. Maybe you can slow down and sort out your thoughts and grammar before you hit “submit comments”

  10. After doing some back of the envelope arithmetic, I noticed an (ahem) error in the WBC statement…
    “Westpac today announced a 0.10% increase to its standard variable home loan rate to 7.46%.”
    “Customers with an average mortgage of $250,000 will see their repayments increase by approximately $16 per month (principal and interest loan).”
    I understand that interest is accrued daily and charged monthly and all that jazz, however something here does not compute. I would have thought the “$16 per month” figure wouldn’t even cover the interest payments.
    Sounds to me like one banking clown said to the other banking clown;
    “Looks like this 0.10% increase will sting the average loan holder by $4/wk.”
    “So how many weeks are there in a month?”
    “Approximately 4.”
    “Okay then I’ll put that in the Release. You are soo smart GK!”

  11. Will the innumerate negative gearers who ignored their accountant’s warnings and become mini-rentiers understand the importance of what just happened?

    The overseas lenders can see. They’ll demand much higher rates at the next rollover and will point to the euro liquidity shambles as an excuse. Just good business, y’know.

    Swanee is on suicide watch and taking pre-emptive blood pressure medication. He is dusting off that socialist dream, the plans for a post office bank.

    Who is cool and unfussed? Glenn Stevens. Low commonwealth borrowings and a high $A mean there is plenty of ammunition and the territory for a war of maneuver. ‘Mount up, Lads!’

    On Thursday night the economic seers at the Land Values Research Group, Prosper Australia and Earthsharing slaughtered a fine pig (we can’t afford one each). Sadly, its entrails were riddled with disease, leading us to predict house price falls of 10 to 15 per cent over the next nine months.

    Steve Keen’s prediction of 10 per cent in twelve months is too cautious.

    Yesterday’s events cement this.

    Don’t Buy Now!

    • “Will the innumerate negative gearers who ignored their accountant’s warnings and become mini-rentiers understand the importance of what just happened?”

      My own outlook for some time has been for a long, slow price melt, interspersed with plateaus and upwellings here and there – but this might just be the beginning of a rather nasty negative feedback loop.

      • “but this might just be the beginning of a rather nasty negative feedback loop”

        Positive feedback loop 🙂

  12. Between working shift work, I make it my daily routine to read every posting and comment on this blog. Having said that, I’d like to just write a little thank you to everyone for their wonderful comments and insights.

    Cheers!

  13. Everyone is tired of Swanny’s anger at the banks routine.
    As with interest rate cuts, the more you do it the less effective it is.

  14. I keep trying to tell you guys that Swan is a complete idiot, he’s making it easier to demonstrate every passing day 🙂

    My base case for the year was 5-10% nominal price falls nationally for housing. I think this pretty much cements that and perhaps even more (keeping in mind that the methodology using medians has masked a lot of far larger regional falls).

    Looking around i see sellers that are starting to understand what is going on. Asking prices are becoming far more “realistic”, and selling prices are well below asking in most cases. Its routine to see selling price being 10% less than asking, in my region of Sydney at least.

    I am waiting to see if a property i had my eye on, which sold about a week ago, shows up on the auction listings as “successful, sold prior”. Its one of the tricks i’ve noticed being used to try and prop up the market.

  15. My 2c on all this.

    The RBA hiked rates from GFC stimulus levels pretty aggressively on the back of particularly ambitious growth forecasts. In the second half of 2011, data was showing these forecasts to be far too optimistic. But, the RBA was hesitant to change direction on rates.

    The government, with it’s stimulus promise, gave the RBA some reason to expect economic activity to remain subdued at a time when bank funding costs where likely to move up rather than down. Thus, the last two cuts reflected this capitulation to the easing position – an adjustment for government contraction and bank funding costs to keep market rates of interest about flat.

    I am quite sure that the technocrats at the RBA do not want to stimulate the Australian appetite for housing speculation again, but they do have a mandate to consider inflation and full employment. Given the direction of employment data, they need to be seen to be doing something.

    I agree with many of the commenters here that dropping rates only to stimulate the same pattern of domestic economic activity is not ideal. We don’t want to continue having a housing bubble dependent over consuming economy.

    There really does need to be an adjustment to less retail, more mining and energy, and more internationally competitive manufacturing and services (hi tech NBN facilitated tech products and services?). This is a multi-decade project that needs buy-in on both sides of politics.

    For me looking at one regulation – the price of money – is missing the broader possibilities to facilitate this transition. What about lowering rates, but tightening loan conditions for residential property, and loosening them for businesses? Tilt the balance in favour of productive activities. Maybe a government co-investment program for hi-tech export focussed manufacturing? Government doesn’t need to be directly involved, but the power exists to provide substantial help to facilitate the adjustment process.

    Or maybe household debt saturation has finally destroyed the house speculation mentality? That would mean that lower interest rates, as seen in experiences abroad, will not stimulate house prices again.

    The RBA has very limited powers to direct the macro economy. But a government with a will to make Australia a competitive producer globally, and insure against risks of a narrow minerals export base, can enact a suite of policies to do just that without risking domestic living standards. Unfortunately, there is political and economic ideology in the way of such commonsense policy.

    • Thanks Cameron for the post.
      I’m on the Sunshine Coast. RE has been smashed here of course. However the old faith is still there even on the Sunshine Coast. It’s a bit like being a Catholic…no matter what the faith never quite leaves you!

      RE speculation has to be killed stone motherless dead! Higher interest rates, no exclusion of any RE from CGT and whatever other sensible policy options those who know more about such things than I can come up with.

      Just for now the RE story is alive and well!

      I’ll cogitate on the rest of your post! 🙂 Certainly much to think about.

      Of course, as you say, the cost of money is just one part. Nevertheless it is still imperative that we price money properly. Failing to do so ALWAYS brings distortion and eventual disaster. Sometimes it just takes a long time!
      My stridency on the subject is fed by continual calls here for lower interest rates. So if I’m a bit intense for some I apologise.