Subscription Options:
Darren Churchill ACT- MEDIA RELEASE: Monday, 19 July 2010: Labor/Greens preference deal shows the bias
- Media Release: 15th July 2010 ACT Democrats announce 2010 No. 1 Senate candidate
- MEDIA RELEASE: 7th July, 2010: Statement on asylum seekers
- Media Release: 30th June 2010: Random Drug testing law is costly and flawed, say Democrats
- Media Release: 30th June 2010: Proposed drug testing law raises human rights and effectiveness concerns, say Democrats
Will we use the low interest rate window to knock down private debt or return lemming-like to the financial orgy?
Australia struts the world stage, its banks safe, consumption stimulated and exports robust. Well done, Mr Rudd, you followed the IMF script pretty well.
Except, ahem, what about private debt? What about the reality that our banks fund half their assets with restless offshore loans, not from sticky domestic deposits?
The Bank of International Settlements prefers the figures to speak for themselves. And they do. Australians have borrowed heavily to buy shiny cars and large comfortable houses.
Borrowing to buy long life assets is a useful way to achieve one’s goals. But in the end, it is all about balance, a quality we are strikingly short of. Big loans mean heavy repayments – so don’t lose your job, get sick or lift your gaze for a moment from the long and arduous task of forwarding your earnings to the bank.
Today’s low interest rates ease the repayment burden. Those that use this window to beat down their borrowings buy flexibility and freedom – for themselves and their country.
And, yes, the economy will recover, followed by higher interest rates.
While the banks have been ‘stress tested’, citizens have not. What happens if the interest rate on your very large mortgage is ten percent not six? What if it is13 per cent?
“Sir! Sir! I know! Sir! Sir!”
Pain. Thirst. Sacrifice.
The Australian Government does not have a debt problem. But you do and I do.
Graph Source: Bank of International Settlements, 79th Annual Report
Tags: arduous task, australian government, australians, bank of international settlements, borrowings, debt problem, interest rate, life assets, low interest rates, offshore loans, private debt, repayments, sacrifice, shiny cars, source bank, thirst, world stage
I’m struggling to get the point of this commentary. Who’s fault is it that we have ‘very large’ mortgages? Granted (non pun intended) the government hasn’t helped housing affordability by handing out money hand over fist, but isn’t it the borrowers responsibility to only borrow what they can afford? I have little sympathy for those crying “mortgage stress” when they have entered the housing market with not only a Mc Mansion, but home and garage full of shiny new product to compliment it.
If people actually saved a bit more, and started off small, wouldn’t the market turn to a buyers market and the prices come down accordingly?
David, I think is pointing out that during the Howard years the govt. spruiked that national debt (governement) dissappeared but the debt of people and business in Australia sky rocketed. Our money supply more than than doubled between 2003 and 2009 and this was almost completely fueled by foreign borrowings.
We had a borrowed boom, not a mining boom!
Why didn’t inflation rise if money supply did, and why didn’t we have full employment? Well prices did rise they just weren’t included in CPI. The cost of housing; rents and homeloan repayments (interest rate reductions reduce the CPI effect) are included in CPI but house prices are not!
House prices rose by 30-40% in the same period, more in some areas. The share market rose by a similar amount and CPI av 2-5 % a year.
Borrowing is not fundementally bad, if its invested in assets that will create more than the interest cost take, borrowing is a great thing. Have we done that?
I think its only now that we can least afford to that we are investing in infrastructure. We must have a better balanced sustainable system, and statistics that truly reflect what is going on in our economy not just a tool for government KPI’s (Key Performance Indicators).