[Turkey]

It's going to be a marvel to behold when the margin compression that the banks keep complaining about turns into record profits when they get announced later in the year.

[Dose]

Turkey, on 02 May 2012 - 09:17 AM, said:

It's going to be a marvel to behold when the margin compression that the banks keep complaining about turns into record profits when they get announced later in the year.

...or the bonuses!

The next big Investment opportunity?

[staringclown]

Ugg, on 02 May 2012 - 02:58 AM, said:

Can you believe less than 24 hours?

Yes unfortunately.

[staringclown]

Our dangerous addiction to low interest rates

Quote

Even if rates in Australia are cut further, the differential between local rates and foreign rates would be significant. There is no assurance that lower rates would have the desired effect of the value of the local currency.

Central banks believe that they will be able to exit from a policy of low rates when appropriate. It is reminiscent of Ashly Lorenzana's definition of addiction in her journal Sex, Drugs & Being an Escort: "When you can give up something any time, as long as it's next Tuesday."

A sustained period of low rates, like the one the world is experiencing, makes it difficult to increase the cost of borrowing. Levels of debt encouraged by low rates would become rapidly unsustainable at higher rates. In effect, the policy compounds existing issues, making the problems ever more intractable.

I think Das makes an interesting point about low interest rates. Lower rates after the GFC lead to increased credit for asset purchase until a ceiling was reached in affordability. When the time came for raising them again even slightly, the economy tanked. I can't see why this pattern won't be repeated next time the rates are raised.

[zaph]

this is going to set the cat amongst the pigeons, but i think the next reaction to declining economic conditions should be some QEing.

[Mr Medved]

staringclown, on 06 May 2012 - 01:05 AM, said:

Our dangerous addiction to low interest rates

I think Das makes an interesting point about low interest rates. Lower rates after the GFC lead to increased credit for asset purchase until a ceiling was reached in affordability. When the time came for raising them again even slightly, the economy tanked. I can't see why this pattern won't be repeated next time the rates are raised.

It made a difference but not a huge difference overall (according to this article) - that is, unless you attribute the lower rates to the decline stopping:

http://www.creditwri...apsed.html?wt=2

[sydney3000]

staringclown, on 06 May 2012 - 01:05 AM, said:

I can't see why this pattern won't be repeated next time the rates are raised.

The pattern won't be repeated because this time the reduction in rates will have no effect and we are heading for zero without a bounce. The next time the rates rise it will be for the reason that low rates are bad for the economy. It might take us two years to get to zero. We might stay at zero for three years. Rates might rocket thereafter. This would be 2017. Didn't we calculate a few months ago the best opportunity to buy property would be in September 2017 and thereafter? By 2017 the baby boomers will be screaming for higher rates because they need interest income to survive.

[staringclown]

Mr Medved, on 06 May 2012 - 01:51 AM, said:

It made a difference but not a huge difference overall (according to this article) - that is, unless you attribute the lower rates to the decline stopping:

http://www.creditwri...apsed.html?wt=2

There seems to be a feedback loop between consumer confidence/credit growth, inflation and interest rates. It's difficult to attribute how much effect one measure has over another.

I'd like to see an overlay of the two below with the credit growth chart you posted. Exactly how much effect does lowering rates affects consumer confidence in a deleveraging environment? The Japan and US examples don't inspire me with confidence.


 IRChart.jpg (59.8K)
Number of downloads: 7

 inflation.jpg (62.57K)
Number of downloads: 7

I just heard Gerard Minack predict 3% OCR by December. And a dollar @90c US. Interest rates had less to do with the prediction than falling commodity prices. The other four had the AUD between 1.00 and 1.10.

zaph wants to inflate ourselves from our troubles. I say why not? Everybody else is doing it. Syd thinks we're going to ZIRP. Me, I want more information before placing my bet.

[sydney3000]

staringclown, on 06 May 2012 - 09:07 AM, said:

Syd thinks we're going to ZIRP.

The fact that the RBA had the best chance to tell the vested interests off this month shows they learned nothing from the misfortunes of others around the world. The status quo is alive. The RBA will raise rates once other central banks do so and prove it brings them out of their misery. The RBA are followers. The worst is still to come for Australia.

[sydney3000]

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This post has been edited by sydney3000: 12 May 2012 - 01:51 PM

[sydney3000]

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This post has been edited by sydney3000: Today, 06:31 AM

[cobran20]

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