Aussies and NZers: Four seasons in one protest

[The Anti-Targ]

The lucky country indeed if we end up shielding you from cyclones.

[Paxter]

Let me be clear too…the population boom should not occur in NE QLD!!!

Or even NE NSW based on recent weather events.

RBA surprised and only went 25 basis points, causing the biggest stock market rally in a couple of years. I’m not too shocked as there are a lot of (valid) views that central banks should “pause” to monitor the lagged effects of their tightening so far.

Theoretically, an interest rate of around 3% is still quite accommodative when inflation is running high. But in this instance, it may have the desired tightening effect due to the low base we have come from and the highly leveraged consumer and business balance sheet.

[The Anti-Targ]

Surely when it comes to raising interest rates the main effect is the proportion of the change relative to the previous interest rate. If you are raising interest rates from 0.25% to 0.75% that might only be a 50 basis points rise, but it is a 200% increase. That means everyone's basic rate of interest went up by alarming amount. But if the interest rate is 3% and it goes to 3.5% then this is only a 16% increase. Not awesome, but also not a shock to the system. And if the interest rate is 10% then raising to 10.5% is only a 5% increase, almost an increase one would simply ignore. I don't know about the young'uns 'round here, but I remember when interest rates were 10%. Happily I was not a mortgage holder back then, but my parents were.

[Paxter]

37 minutes ago, The Anti-Targ said:

Surely when it comes to raising interest rates the main effect is the proportion of the change relative to the previous interest rate. If you are raising interest rates from 0.25% to 0.75% that might only be a 50 basis points rise, but it is a 200% increase. That means everyone's basic rate of interest went up by alarming amount. But if the interest rate is 3% and it goes to 3.5% then this is only a 16% increase. Not awesome, but also not a shock to the system. And if the interest rate is 10% then raising to 10.5% is only a 5% increase, almost an increase one would simply ignore. I don't know about the young'uns 'round here, but I remember when interest rates were 10%. Happily I was not a mortgage holder back then, but my parents were.

What matters is the proportional increase in the real interest rate. Nominal interest rates (like the 10% your parents paid on a mortgage) are only one part of that equation. 

Let’s be clear - no one’s real rates have gone up much in this environment. Inflation is running so hot that it’s not a great time to be lending money: the interest you earn from a borrower is not keeping up with inflation.

Another way to think about it is in terms of bank deposits. Do you think you are suddenly making an amazing return on your savings? No, because it’s not keeping pace with inflation. Of course, this will change if/when inflation finally moderates. But as things stand, monetary policy is only just getting tight.

[Impmk2]

21 minutes ago, The Anti-Targ said:

I don't know about the young'uns 'round here, but I remember when interest rates were 10%. Happily I was not a mortgage holder back then, but my parents were.

A big difference is homes cost 2-3x the average yearly household income then, rather than 5-8x.

Was chatting to a work colleague who was talking about back in the day having a ~15% interest rate which she paid off in 7 years. For us to do that we'd have to put 100% of our total take home income on the mortgage, which is clearly impossible.

 

[Paxter]

25 minutes ago, Impmk2 said:

A big difference is homes cost 2-3x the average yearly household income then, rather than 5-8x.

Was chatting to a work colleague who was talking about back in the day having a ~15% interest rate which she paid off in 7 years. For us to do that we'd have to put 100% of our total take home income on the mortgage, which is clearly impossible.

As things stand, most mortgage holders in Aus should still be in a decent position. Household savings are high, unemployment is extremely low and mortgages should have been properly stress tested at origination against about a 3% rate (APRA requirements). And that’s putting aside high inflation, which effectively discounts the 3% significantly. 

The debt burden is still significant and not everyone will see a wage increase that keeps up with core inflation, but overall it looks OK.

Now this will start to change if the RBA can’t keep a lid on inflation, as they will then have to tighten even more aggressively, causing financial stress across the economy. And that massive debt burden that mortgage holders have entered into will start to tell.

[The Anti-Targ]

*clears throat*

Page count and all that.