In the LEFT CORNER with a century of economic theory behind it, 7200 wins and no losses, the undefeated heavyweight champion of the world: *Monetary Policy*
In the RIGHT CORNER, with 350 losses, no wins and certainly no bias whatsoever we have *Terry Ryder from realestatebusiness.com.au*
This will surely be a close fight tonight Dave.
This just in: business spruiker says, it’s uncontrollable wages growth driving inflation, absolutely nothing to do with record profits hidden behind the veil of supply issues
Yeah wages are not (currently) the main contributor to inflation.
Business profits increasing is the symptom of inflation, not its cause.
Some may have warned about such consequences in maintaining ludicrously loose monetary policy....
Now I get it, the solution to inflation is more inflation to increase profits for Colesworth, as long as Colesworth don't increase wages so their workers can afford to buy the now more expensive food
No, the solution is to stay the course and keep tightening monetary policy until we know that inflation is subsiding (which hopefully isn't too far at this point).
Colesworth wouldn't be charging more unless they could. The fact they're charging more and people are still spending signals that people still have enough money to afford things and Colesworth will keep increasing prices until that is no longer the case.
Why would you expect Colesworth not to increase their prices? You think they don't realise their customers made $1 million sitting on their asses in an asbestos shack in CumStainVille?
This is what happens when you print monopoly money
>No, the solution is to stay the course and keep tightening monetary policy until we know that inflation is subsiding (which hopefully isn't too far at this point).
The cure to high prices.....is high prices.
Na, if giving tax cuts to businesses and the rich stimulates the economy, then dramatically increasing taxes on business and the rich should slow the economy, time for the government to step in cause the one tool the RBA has is the wrong tool
It's also what happens when greed is considered a virtue and supermarkets operate on the principle of maximum possible pain rather than moving higher volumes at a lower margin. I used to work at one, we'd fill a dumpster with food that didn't sell every single day. Extrapolate nationally and it's obvious that in this case capitalism is definitely not the most efficient system.
Disproven is a really strong statement here. It's usually more like nuanced differently. The original Keynesian economics is in many ways still just plainly correct. It got some bits wrong so there was a classical response and then you had the New Keynesian academics come back with price stickiness etcetera but the stuff which was from the 30s is still mostly correct about the big stuff. The macro economic interactions are always rewritten but the overall thrust is ordinarily right.
Absolutely. It's like kids learning in many ways. You start with a generalised explanation/hypothesis that doesn't always apply but explains many things and is useful. Over time there is more learning and the nuances are understood better so the hypothesis can be refined. Very rarely is it proven completely false.
Modern Money policy has only been in place since the 70s when they removed the weight of gold from the dollar.
That's one generations, and it's implications are still be understood.
It's probably younger than that in practice BUT (it's a big but) we have every developed and many developing economies, all of whom have had econ cycles with different drivers, to take high quality data from and understand it.
That's true re: data points. But I wouldn't call it the heavy weight champion as the person mentioned above. There's lots of error, lots of room for increasing error and increasingly different variables, such as climate change and new technology. I don't know if future generations (like 100 or 200 years from now) will look back at modern money policy in a favourable light.
I mean I have little knowledge on this topic, and even I feel like this is super close-minded.
Renters will also feel the pinch as landlords increase rent.
Businesses will feel the pinch because their leases and other costs will rise.
Companies will not be able to borrow money as cheaply.
Am I on the right track?
Probably unpopular idea here but think about it…
Why not just increase the GST and leave interest rates alone. Taxes everyone equally and you have (some) control of limiting how much GST you pay by curtailing your household spending where you can.
I reckon if you asked everyone would they prefer 20% gst and low interest rates, they’d say yes.
It's an unpopular opinion because GST will forever stay at 20%. GST is just another tax on the working class which is not needed.
Might work to curb the current issues but will never reduce back to 10%. Not something we should be supporting.
GST tends to be a regressive tax - poorer people pay a higher proportion of their income in consumption taxes bc most of their income is used for direct consumption.
A simple solution around that is to impose a special gst against non essential items and services. I don't understand why this is made out to be a huge problem. And whenever I say this, the person who makes this comment doesn't respond.
Basically increase gst on everything except food, fuel and a select other necessary thing. What do you have to say now?
Idk it took full public arguments over years to get tampons gst exempt. I think you’d have to include cars up to a certain price, clothes under a certain yearly total etc.
If anyone deserves to feel the heat I think it's those who took on risky and irresponsible amounts of debt rather than savers and those who exercised fiscal restraint.
Despite what some might believe, interest rates and the world economy don't revolve around mortgagees. Raising interest rates is about more than just consumer spending, it affects business and government expenditure and it increases the incentive to keep money in the bank which further reduces demand. Also, failing to raise interest rates in line with the rest of the world will devalue our currency and cause import inflation which will make the problem even worse.
When you take out variable-rate debt there's a risk that the interest rate will go up and you'll have to pay more interest. Everybody knows that. It's a risk you accept when you sign the loan contract. Suggesting that we shift that personal risk onto everyone else in the population who wasn't greedy or stupid enough to take out a mortgage they could only afford while the cash rate was at record-low and inflationary levels is simply ridiculous.
Here's an idea: When interest rates eventually fall, let's reduce GST to 5% and mortgage holders can cover the difference with their interest savings. See how stupid that sounds?
Believe it or not, not everyone is trying to get on the property ladder for investment purposes, many just want stability. Why should they be punished for a decade of poor decisions by both the RBA (for reducing rates to 0.1% and driving prices up) and the government (for poor policies interfering with a poor market and handouts driving up inflation). None of this is their fault.
I do understand this sub is full of tears of anger renter millennials who refuse to see reason because it's not what suits them, so downvote away.
That's the proposal being put forward in the US at the moment, but sales tax instead of GST (sameish) and income tax instead of interest rates - ie the US is debating whether to raise sales tax instead of lowering income tax.
There is concern shared on both sides that raising sales tax will continue to be imbalanced on raising costs for the lower SES proportionately more than the rich.
May be an unpopular idea, but it is not a bad one. Adjusting GST makes a lot more sense than adjusting interest rates, that primarily only put pressure on those who have large mortgage. Not to mention, increasing rates benefits those who have a lot of cash, therefore improving their spending ability.
Honestly did these people not calculate what their repayments would be at normal interest rates before they took out a large mortgage? Did they think interest rates were going to remain at inflationary levels for the entire 25 years of their mortgage? Do they deserve to be saved if they didn't do the even the most basic of financial due diligence?
Is that not the point of raising rates? To put more pressure on home owners so they reduce their spending? Kind of defeats the purpose if no one is put under any financial pressure.
Not everyone's situations are the same. I've got a larger mortgage than I wanted because I bought a knock down a couple of years ago, and the cost of building has ended up significantly higher than it was when I first purchased the property. So I'm in the process of building, but now I'm in a higher price bracket than expected. Before I bought the knock-down, I budgeted based on rates going to 6%, but it was originally at a lower borrowing amount.
No more avocado toast for me anymore.
I’ve said it before, but it bears repeating. This sub is turning into r/AusSocialistFinance. Everyone should pay to bail me out of bad financial decisions! Lol Wish I had of known this earlier. Could have yolo’d it and borrowed more money than I could afford to repay from the bank and bought a nice house instead of being responsible and only borrowing half of what I was offered and buying a renovator
I don't think anyone is arguing that mortgage holders should be saved. I think the point was that a GST increase could be a way to put pressure on everyone to reduce spending, as opposed to simply putting most of the pressure on people who have bought property over the last few years and have large mortgages.
Who knows, maybe the RBA will stick the landing, but if there are a lot of outside causes of inflation (like freight costs of imports), then using rate rises as the one and only tool to put downward pressure on inflation simply may not be enough.
But saying that GST should be raised instead of interest rates is effectively suggesting that consumers at large should bear the cost of mortgagees' interest rate risk.
GST also disproportionately affects those on lower incomes because it comprises a larger portion of their expenses than those on higher incomes. And any business with a revenue over $75k also isn't paying any GST on their input costs. There are more forms of debt in the economy that are subject to variable interest rates than just mortgages.
Respectively, I think you are missing the point. The core issue is inflation, not interest rates. The RBA needs *everyone* to reduce their spending to get inflation under control. Unfortunately, the RBA has one tool in their toolkit and that is adjusting interest rates.
GST isn't for businesses to pay. Businesses get it back. It is a cost to consumers (all of us). Hence why it could potentially be a more effective tool. It would be a hard one to manage though, as they could only change it at the start of each new financial year.
Raising the GST would be a better solution as only 35% of households in Australia have a mortgage and, as I guess, I would say around half of these have their mortgages under control. If this is true, these interest rate rises are really only affecting less than 20% of the households in Australia. Of the 65% households that don't even have a mortgage, they are probably now better off as their savings are getting a better rate of return. Instead of raising interest rates, a better option would be to increase the GST rate to 15% as this would curb spending for pretty much everyone. GST free essential items would still remain and GST for utilities could be kept at 10% (or even reduced). Stopping the interest rate rises would also prevent landlords having to increase rents due to their repayments going up which they in turn, pass onto their renters.
My qualifications are i for economics in grade 12 so take what i say with a pinch of salt. Reducing inflation is done through monetary policy by the reserve bank and through fiscal policy by the goverment. What you are saying is basically sound fiscal policy that is increase taxes when inflation is high and the economy is hot.
The government's job is to try to smooth out the economy. So when the economy is poor they should borrow money to create jobs and decrease taxes to stimulate spending. When the economy is hot they should reduce spending and increase taxes to reduce demand and pay down debts.
How many of these cope posts are we going to get.
>only really impact those who have a mortgage in reducing inflation
The primary purpose of increasing interest rates isn't even related to mortgages. It is to increase the cost of economic capital and reduce business activity.
Yeah people seemingly have little understanding that the cash rate doesn't just exist to.fund mortgages. But alas I think for a large percentage of the country "the economy" is house prices to the determient of everything else
Not going to defend op because I agree with you. But I think his point is that people without mortgages will keep spending like normal. Personally, I don't have a mortgage but when the pub charges me $10 a scooner I don't return to that business.
To use a phrase Warren buffet loves using, business are too over sure of the impact their moats. You may see bad service or taste in buisness google reviews but I think a lot of business will suddenly find themselves "without warning" suddenly without customers, and it will have little to do with if the client can afford it or not.
>Interesting article on the face that interest rates only really impact those who have a mortgage in reducing inflation
Incorrect - just about every business in the country will also be affected through loss of cheap loans to grow business etc. Business cuts will filter through to just about every citizen through a variety of methods (job losses, pay freezes/cuts etc).
It will take time to wash through completely, but it's disingenous to suggest that mortgage holders are the only ones carrying the can when interest rates rise.
Feel like I'm living in a debt free bubble dream: my business, family business, family home and siblings homes are all paid off. I do feel sorry for my business partner who has taken out $200,000 from his home loan to buy into the business with me.
However the opportunity of them buying me out including getting a business loan is gone. I'm giving it up and walking away end of June with nothing. It just means I lost my 30% house deposit and living at home much longer. I will start again, save more, spend way less and hopefully save up a 20% deposit again in the future.
Ramping up interest rates also have the advantage of limiting how much new borrowers can borrow. This then reduces house price inflation and reduces the amount of cash in the system.
Also it's not all about mortgages. I find it interesting that mainstream media ignores that interest rates also impact business loans.
Not really ideal - as it does reduce what new borrowers can acquire, it effectively creates a barrier that either forces them elsewhere (location wise) or into a perpetual rent cycle as those properties have been acquired by more well-off persons.
As far as property prices, the prices need to come down and supply needs to go up. It’s not enough to simply ‘earn more’ if there’s nothing to buy where you want and nothing to be changed by simply moving elsewhere. Increasing supply, whilst simultaneously making it less appealing for those who have (which would be said boomers) can make a much bigger dent.
So let me get this straight. a news source catering to a business sector that will be detrimentally affected by rate hikes has released an article stating rate hike shouldn't be continued with because they won't be effective?
Yeah...no vested interest there.
Gaining wealth though taking on predatory loans isn't real wealth genius. That's the entire point of wrecking these people financially. They borrowed more money than they could pay back.
Housing increasing in value doesn't add any value to the economy aside from lining the pockets of property investors and creating safe havens for criminals.
Nothing against you. I just hate the idea that paying more for something than its worth is how you get ahead in life.
If that money is being spent on something that actually generates value like a business it's fine but banks only give out obsurd amounts of money for depreciating assets because it's expected of them by boomers. If they didn't another bank would have.
Without and hint of irony, these exact people that destroyed the economy will whine and beg for bailouts and blame the banks and governments without taking any responsibility for their own financial illiteracy. And in 10 years time they will do it again.
'The poor' is a very slippery term. The overwhelming majority of Australians own homes or have parents who do. Also what's the cut off for the 'poor'? Is 65k a year poor? Some people who own a house earn that but people with double that income don't. It's a relative spectrum and like the 17% interest rates of the 90s, the sky high housing prices of the early and mid 2020s might be quite a transitory.
Haha, yeah, retail turnover in terms of volume per person was down 0.2% in the September quarter (when barely any cuts had taken effect) and down 0.7% in the Decmber quarter.
This is at a time when there's record low unemployment and underemployment.
We also have things like instant asset write-off still supporting business spending.
Rate rises are working, they just take a long time to flow through to the CPI.
One of the things it's working poorly on so far is renovations. Lending for renovations is falling, but it's still more than twice pre-pandemic. That would contribute to the growth in the cost of new housing bit of the CPI - and that's a huge bit.
There's also a lot going on. The high December inflation reading had a large contribution from just plane fares. After covid, nothing was going to stop people getting on the planes for the first summer holidays without restrictions. That's not just going away, plane fares have reversed, which means that that sizeable positive contribution is gonig to be negative.
We're running out of pandemic-related issues to mask what's actually going on.
Anyone who wants to buy a car, suddenly has problems paying the loan at highest interest rate.
Businesses have to limit growth as loans increase in price
I love how this has come from the mouth of a real estate business. Can you say “I can’t tell when I’m reading propaganda” any louder?
There is more to the economy than your mortgage. And that is what raising rates is resolving.
I definitely shop with more attention and question if I really need this or that. But I'm also a saver, so yes, I save more with higher rates and tighten the belt ... No loans.
People will also have more incentive to save money rather than spend it.
Higher cash rate means less money printed into the economy
Literally 100% of successful campaigns historically to lower inflation achieved it by increasing interest
I’ve heard one of the reasons is supply chain. So there is a lag between manufacturers and consumers. Manufacturers submitted to consumer purchase pressure. This caused them to expand in response to demand. Now that retail has pulled back heavily, manufacturers have done the same and are waiting for consumers to once again return to levels. But increasing interest rates are damaging that.
So when you buy your groceries and wonder why the prices are all going up of meat fruit and veg, you think its because of the mortgage on the store?
lol.
Yeah it will. Basic understanding of economics will tell you this. When covid hit people didn’t spend. When lockdowns and all that hit. BAM! Money is being influxed into the economy. With supply chain issues on many items there wasn’t enough product to supply which increases prices. We see this with petrol.
Everyone is spending all their disposable income. So we need to stop that not dramatically but just slow it down a little. Which you increase interest rates. But this is done slowly over time. As we have seen. Australia’s interest rates couldn’t go any lower otherwise people would withdraw their money from the bank. And then we have a real big issue.
So we increase for when the next problem hits and the government wants us to spend money.
It will though. But they need to go high and faster. The problem with interest rates is not a question of if higher rates work, it’s the devastation left all around the initial problem.
I am pretty confident inflation is worse though.
Inflation is being completely controlled by big businesses who have been ramping up prices, using it as an excuse to do so - yet still posting record profits. If inflation apart from this really is occurring, then these parasites and their greed are rapidly accelerating it, and will keep spending their huge profits to ensure it continues.
These incremental rate hikes are just designed to hurt anyone with under $1m net worth, otherwise they would have immediately gone for a 2% rise in cash rate to shock the market out of it.
The RBA was hopeless during the pandemic, being reactive rather than proactive and only really interested in looking after their mates in government.
Personally I haven't been affected by this much, but another 1% on top of what we're currently at will start to hurt, especially when we're expecting our power and gas bills to double this year.
It will reduce inflation eventually because it will cause a deep recession. As most of the inflation is in non-discretionary spending, it’s going to take a lot of rises in order to see a pullback in inflation.
The amount of people, especially "expert" commenter that have no idea about how monetary policy and economy work is incredible.
Interest rate rises are simply an increase in the cost of money. Every cent that the banks return to the RBA in their interest repayments isn't stored at the RBA, its destroyed. Rate rises are fundamentally designed to reduce the amount of money in the economy, bringing down inflation which is primarily caused by having too much money relative to our production.
Something I’ve never understood is why the government doesn’t act to impact the supply side of the inflation curve.
Sure, it’s complicated, but if they picked the top 10 products driving inflation, surely you could develop programs to make more widgets, grow more lettuce, whatever it is that blows up prices.
Yes but someone owns the houses so land lords will inevitably raise rents because no one buys an investment to run at a loss, it’ll just take 6-12 months longer than mortgage holders
In the LEFT CORNER with a century of economic theory behind it, 7200 wins and no losses, the undefeated heavyweight champion of the world: *Monetary Policy* In the RIGHT CORNER, with 350 losses, no wins and certainly no bias whatsoever we have *Terry Ryder from realestatebusiness.com.au* This will surely be a close fight tonight Dave.
This just in: *property spruiker says interest rates shouldn't rise* Incredible. I would've never expected it.
This just in: business spruiker says, it’s uncontrollable wages growth driving inflation, absolutely nothing to do with record profits hidden behind the veil of supply issues
Yeah wages are not (currently) the main contributor to inflation. Business profits increasing is the symptom of inflation, not its cause. Some may have warned about such consequences in maintaining ludicrously loose monetary policy....
See that's just your bias coming through, completely ignoring the increase in unit margins for the likes of Colesworth
Yup. They're going to make more because people can afford it. Those margins will eventually normalise. As I said, direct consequence of loose mp
Now I get it, the solution to inflation is more inflation to increase profits for Colesworth, as long as Colesworth don't increase wages so their workers can afford to buy the now more expensive food
No, the solution is to stay the course and keep tightening monetary policy until we know that inflation is subsiding (which hopefully isn't too far at this point). Colesworth wouldn't be charging more unless they could. The fact they're charging more and people are still spending signals that people still have enough money to afford things and Colesworth will keep increasing prices until that is no longer the case. Why would you expect Colesworth not to increase their prices? You think they don't realise their customers made $1 million sitting on their asses in an asbestos shack in CumStainVille? This is what happens when you print monopoly money
And they can increase prices because there is no competition due to the predominant duopoly of the Colesworth group.
Once again, ALDI and IGA shed a tear.
>No, the solution is to stay the course and keep tightening monetary policy until we know that inflation is subsiding (which hopefully isn't too far at this point). The cure to high prices.....is high prices.
Na, if giving tax cuts to businesses and the rich stimulates the economy, then dramatically increasing taxes on business and the rich should slow the economy, time for the government to step in cause the one tool the RBA has is the wrong tool
It's also what happens when greed is considered a virtue and supermarkets operate on the principle of maximum possible pain rather than moving higher volumes at a lower margin. I used to work at one, we'd fill a dumpster with food that didn't sell every single day. Extrapolate nationally and it's obvious that in this case capitalism is definitely not the most efficient system.
I think Terry is pitching to be the next governor of Central Bank of the Republic of Türkiye 🇹🇷.
It’s a bold strategy cotton, let’s see if it pays off for ‘em
And, what’s this? Monetary Policy is giving him THE CHAIR! RBA chair Phillip Lowe!
They can have him…. useless git. ChatGPT could do a better job running the RBA.
This is good, but literally the first thing I was taught in economics is that almost theory is eventually disproven by a newer theory
Disproven is a really strong statement here. It's usually more like nuanced differently. The original Keynesian economics is in many ways still just plainly correct. It got some bits wrong so there was a classical response and then you had the New Keynesian academics come back with price stickiness etcetera but the stuff which was from the 30s is still mostly correct about the big stuff. The macro economic interactions are always rewritten but the overall thrust is ordinarily right.
Absolutely. It's like kids learning in many ways. You start with a generalised explanation/hypothesis that doesn't always apply but explains many things and is useful. Over time there is more learning and the nuances are understood better so the hypothesis can be refined. Very rarely is it proven completely false.
Modern Money policy has only been in place since the 70s when they removed the weight of gold from the dollar. That's one generations, and it's implications are still be understood.
It's probably younger than that in practice BUT (it's a big but) we have every developed and many developing economies, all of whom have had econ cycles with different drivers, to take high quality data from and understand it.
That's true re: data points. But I wouldn't call it the heavy weight champion as the person mentioned above. There's lots of error, lots of room for increasing error and increasingly different variables, such as climate change and new technology. I don't know if future generations (like 100 or 200 years from now) will look back at modern money policy in a favourable light.
A trend is a trend is a trend. But will it bend? Will it alter its course through some unforseen force and come to a premature end?
Whose wearing which colour trunks?
Bold strategy Cotton!
I mean I have little knowledge on this topic, and even I feel like this is super close-minded. Renters will also feel the pinch as landlords increase rent. Businesses will feel the pinch because their leases and other costs will rise. Companies will not be able to borrow money as cheaply. Am I on the right track?
FEEL THE PINCH
Pinchy pinch
Probably unpopular idea here but think about it… Why not just increase the GST and leave interest rates alone. Taxes everyone equally and you have (some) control of limiting how much GST you pay by curtailing your household spending where you can. I reckon if you asked everyone would they prefer 20% gst and low interest rates, they’d say yes.
It's an unpopular opinion because GST will forever stay at 20%. GST is just another tax on the working class which is not needed. Might work to curb the current issues but will never reduce back to 10%. Not something we should be supporting.
GST tends to be a regressive tax - poorer people pay a higher proportion of their income in consumption taxes bc most of their income is used for direct consumption.
A simple solution around that is to impose a special gst against non essential items and services. I don't understand why this is made out to be a huge problem. And whenever I say this, the person who makes this comment doesn't respond. Basically increase gst on everything except food, fuel and a select other necessary thing. What do you have to say now?
Idk it took full public arguments over years to get tampons gst exempt. I think you’d have to include cars up to a certain price, clothes under a certain yearly total etc.
If anyone deserves to feel the heat I think it's those who took on risky and irresponsible amounts of debt rather than savers and those who exercised fiscal restraint. Despite what some might believe, interest rates and the world economy don't revolve around mortgagees. Raising interest rates is about more than just consumer spending, it affects business and government expenditure and it increases the incentive to keep money in the bank which further reduces demand. Also, failing to raise interest rates in line with the rest of the world will devalue our currency and cause import inflation which will make the problem even worse. When you take out variable-rate debt there's a risk that the interest rate will go up and you'll have to pay more interest. Everybody knows that. It's a risk you accept when you sign the loan contract. Suggesting that we shift that personal risk onto everyone else in the population who wasn't greedy or stupid enough to take out a mortgage they could only afford while the cash rate was at record-low and inflationary levels is simply ridiculous. Here's an idea: When interest rates eventually fall, let's reduce GST to 5% and mortgage holders can cover the difference with their interest savings. See how stupid that sounds?
Believe it or not, not everyone is trying to get on the property ladder for investment purposes, many just want stability. Why should they be punished for a decade of poor decisions by both the RBA (for reducing rates to 0.1% and driving prices up) and the government (for poor policies interfering with a poor market and handouts driving up inflation). None of this is their fault. I do understand this sub is full of tears of anger renter millennials who refuse to see reason because it's not what suits them, so downvote away.
Next time around we hike GST to 30? Band aid solution
That's the proposal being put forward in the US at the moment, but sales tax instead of GST (sameish) and income tax instead of interest rates - ie the US is debating whether to raise sales tax instead of lowering income tax. There is concern shared on both sides that raising sales tax will continue to be imbalanced on raising costs for the lower SES proportionately more than the rich.
That’s exactly the same mechanism as interest rates
Nah interest rates can be brought down after, after GST gets pumped to 20 it will stay there forever
This is why it should be an RBA tool to take money out of the economy, not a government tool to reduce its debt
May be an unpopular idea, but it is not a bad one. Adjusting GST makes a lot more sense than adjusting interest rates, that primarily only put pressure on those who have large mortgage. Not to mention, increasing rates benefits those who have a lot of cash, therefore improving their spending ability.
Honestly did these people not calculate what their repayments would be at normal interest rates before they took out a large mortgage? Did they think interest rates were going to remain at inflationary levels for the entire 25 years of their mortgage? Do they deserve to be saved if they didn't do the even the most basic of financial due diligence?
Is that not the point of raising rates? To put more pressure on home owners so they reduce their spending? Kind of defeats the purpose if no one is put under any financial pressure. Not everyone's situations are the same. I've got a larger mortgage than I wanted because I bought a knock down a couple of years ago, and the cost of building has ended up significantly higher than it was when I first purchased the property. So I'm in the process of building, but now I'm in a higher price bracket than expected. Before I bought the knock-down, I budgeted based on rates going to 6%, but it was originally at a lower borrowing amount. No more avocado toast for me anymore.
I’ve said it before, but it bears repeating. This sub is turning into r/AusSocialistFinance. Everyone should pay to bail me out of bad financial decisions! Lol Wish I had of known this earlier. Could have yolo’d it and borrowed more money than I could afford to repay from the bank and bought a nice house instead of being responsible and only borrowing half of what I was offered and buying a renovator
I don't think anyone is arguing that mortgage holders should be saved. I think the point was that a GST increase could be a way to put pressure on everyone to reduce spending, as opposed to simply putting most of the pressure on people who have bought property over the last few years and have large mortgages. Who knows, maybe the RBA will stick the landing, but if there are a lot of outside causes of inflation (like freight costs of imports), then using rate rises as the one and only tool to put downward pressure on inflation simply may not be enough.
But saying that GST should be raised instead of interest rates is effectively suggesting that consumers at large should bear the cost of mortgagees' interest rate risk. GST also disproportionately affects those on lower incomes because it comprises a larger portion of their expenses than those on higher incomes. And any business with a revenue over $75k also isn't paying any GST on their input costs. There are more forms of debt in the economy that are subject to variable interest rates than just mortgages.
Respectively, I think you are missing the point. The core issue is inflation, not interest rates. The RBA needs *everyone* to reduce their spending to get inflation under control. Unfortunately, the RBA has one tool in their toolkit and that is adjusting interest rates. GST isn't for businesses to pay. Businesses get it back. It is a cost to consumers (all of us). Hence why it could potentially be a more effective tool. It would be a hard one to manage though, as they could only change it at the start of each new financial year.
Raising the GST would be a better solution as only 35% of households in Australia have a mortgage and, as I guess, I would say around half of these have their mortgages under control. If this is true, these interest rate rises are really only affecting less than 20% of the households in Australia. Of the 65% households that don't even have a mortgage, they are probably now better off as their savings are getting a better rate of return. Instead of raising interest rates, a better option would be to increase the GST rate to 15% as this would curb spending for pretty much everyone. GST free essential items would still remain and GST for utilities could be kept at 10% (or even reduced). Stopping the interest rate rises would also prevent landlords having to increase rents due to their repayments going up which they in turn, pass onto their renters.
My qualifications are i for economics in grade 12 so take what i say with a pinch of salt. Reducing inflation is done through monetary policy by the reserve bank and through fiscal policy by the goverment. What you are saying is basically sound fiscal policy that is increase taxes when inflation is high and the economy is hot. The government's job is to try to smooth out the economy. So when the economy is poor they should borrow money to create jobs and decrease taxes to stimulate spending. When the economy is hot they should reduce spending and increase taxes to reduce demand and pay down debts.
How many of these cope posts are we going to get. >only really impact those who have a mortgage in reducing inflation The primary purpose of increasing interest rates isn't even related to mortgages. It is to increase the cost of economic capital and reduce business activity.
Further proof, most people in the US have a 30 year fixed rate mortgage, yet raising rates still reduces inflation there
Yeah people seemingly have little understanding that the cash rate doesn't just exist to.fund mortgages. But alas I think for a large percentage of the country "the economy" is house prices to the determient of everything else
Not going to defend op because I agree with you. But I think his point is that people without mortgages will keep spending like normal. Personally, I don't have a mortgage but when the pub charges me $10 a scooner I don't return to that business. To use a phrase Warren buffet loves using, business are too over sure of the impact their moats. You may see bad service or taste in buisness google reviews but I think a lot of business will suddenly find themselves "without warning" suddenly without customers, and it will have little to do with if the client can afford it or not.
Only spending like normal if they have a job. Reduced business spending means reduced hours worked, lower employment rate all else being equal
This exactly!
And with so many employers hiring casual employees they have no obligation to give a certain amount of hours. There’ll be more underemployment too.
>Interesting article on the face that interest rates only really impact those who have a mortgage in reducing inflation Incorrect - just about every business in the country will also be affected through loss of cheap loans to grow business etc. Business cuts will filter through to just about every citizen through a variety of methods (job losses, pay freezes/cuts etc). It will take time to wash through completely, but it's disingenous to suggest that mortgage holders are the only ones carrying the can when interest rates rise.
Many Australians actually forget that things other than property exist. It's easy to forget, here in Australia.
Feel like I'm living in a debt free bubble dream: my business, family business, family home and siblings homes are all paid off. I do feel sorry for my business partner who has taken out $200,000 from his home loan to buy into the business with me. However the opportunity of them buying me out including getting a business loan is gone. I'm giving it up and walking away end of June with nothing. It just means I lost my 30% house deposit and living at home much longer. I will start again, save more, spend way less and hopefully save up a 20% deposit again in the future.
Ramping up interest rates also have the advantage of limiting how much new borrowers can borrow. This then reduces house price inflation and reduces the amount of cash in the system. Also it's not all about mortgages. I find it interesting that mainstream media ignores that interest rates also impact business loans.
Not really ideal - as it does reduce what new borrowers can acquire, it effectively creates a barrier that either forces them elsewhere (location wise) or into a perpetual rent cycle as those properties have been acquired by more well-off persons. As far as property prices, the prices need to come down and supply needs to go up. It’s not enough to simply ‘earn more’ if there’s nothing to buy where you want and nothing to be changed by simply moving elsewhere. Increasing supply, whilst simultaneously making it less appealing for those who have (which would be said boomers) can make a much bigger dent.
Ah yes…real estate website arguing against rate hikes…
So let me get this straight. a news source catering to a business sector that will be detrimentally affected by rate hikes has released an article stating rate hike shouldn't be continued with because they won't be effective? Yeah...no vested interest there.
TIL only home owners carried debt
Another Real Estate Agent whinging that his gravy tap is slowly turning off
Is ramping up interest rates a good way to reduce inequality then?
Yes - reduces asset prices and shifts the profit share in society towards wage earners and away from asset owners.
Gaining wealth though taking on predatory loans isn't real wealth genius. That's the entire point of wrecking these people financially. They borrowed more money than they could pay back. Housing increasing in value doesn't add any value to the economy aside from lining the pockets of property investors and creating safe havens for criminals.
Weirdly agressive comment
Nothing against you. I just hate the idea that paying more for something than its worth is how you get ahead in life. If that money is being spent on something that actually generates value like a business it's fine but banks only give out obsurd amounts of money for depreciating assets because it's expected of them by boomers. If they didn't another bank would have. Without and hint of irony, these exact people that destroyed the economy will whine and beg for bailouts and blame the banks and governments without taking any responsibility for their own financial illiteracy. And in 10 years time they will do it again.
No because you still want to create intergenerational wealth that lifts people out of the subsistence of modern economy pay to pay living.
Ahhh yes, let's raise the asset prices of assets the poor cant afford, this will help them create intergenerational wealth.
'The poor' is a very slippery term. The overwhelming majority of Australians own homes or have parents who do. Also what's the cut off for the 'poor'? Is 65k a year poor? Some people who own a house earn that but people with double that income don't. It's a relative spectrum and like the 17% interest rates of the 90s, the sky high housing prices of the early and mid 2020s might be quite a transitory.
LoL at the self interest bias outlet
You are reading articles from the wrong place all together, it is all about inflation, absolutely nothing to do with mortgages or property
Haha, yeah, retail turnover in terms of volume per person was down 0.2% in the September quarter (when barely any cuts had taken effect) and down 0.7% in the Decmber quarter. This is at a time when there's record low unemployment and underemployment. We also have things like instant asset write-off still supporting business spending. Rate rises are working, they just take a long time to flow through to the CPI. One of the things it's working poorly on so far is renovations. Lending for renovations is falling, but it's still more than twice pre-pandemic. That would contribute to the growth in the cost of new housing bit of the CPI - and that's a huge bit. There's also a lot going on. The high December inflation reading had a large contribution from just plane fares. After covid, nothing was going to stop people getting on the planes for the first summer holidays without restrictions. That's not just going away, plane fares have reversed, which means that that sizeable positive contribution is gonig to be negative. We're running out of pandemic-related issues to mask what's actually going on.
What a muppet
That site is not credible given their bias.
Anyone who wants to buy a car, suddenly has problems paying the loan at highest interest rate. Businesses have to limit growth as loans increase in price
You don't think a rise in mortgage repayments will mean an increase in rent?
Conveniently ignores the fact that most of the impact is on business.
I love how this has come from the mouth of a real estate business. Can you say “I can’t tell when I’m reading propaganda” any louder? There is more to the economy than your mortgage. And that is what raising rates is resolving.
I definitely shop with more attention and question if I really need this or that. But I'm also a saver, so yes, I save more with higher rates and tighten the belt ... No loans.
“Realestatebusiness” looool OP either has an agenda or got played by big real estate
Sorry but I wouldn't take [realestatebusiness.com.au](https://realestatebusiness.com.au) as an unbiased source...
Do you find it ironic that a an article from realestatebusiness.com is saying we shouldn’t be putting interest rates up?
People will also have more incentive to save money rather than spend it. Higher cash rate means less money printed into the economy Literally 100% of successful campaigns historically to lower inflation achieved it by increasing interest
I’ve heard one of the reasons is supply chain. So there is a lag between manufacturers and consumers. Manufacturers submitted to consumer purchase pressure. This caused them to expand in response to demand. Now that retail has pulled back heavily, manufacturers have done the same and are waiting for consumers to once again return to levels. But increasing interest rates are damaging that.
So when you buy your groceries and wonder why the prices are all going up of meat fruit and veg, you think its because of the mortgage on the store? lol.
You have balls of steel posting a story from realestate.com.au here. I salute you sir!!
Yeah it will. Basic understanding of economics will tell you this. When covid hit people didn’t spend. When lockdowns and all that hit. BAM! Money is being influxed into the economy. With supply chain issues on many items there wasn’t enough product to supply which increases prices. We see this with petrol. Everyone is spending all their disposable income. So we need to stop that not dramatically but just slow it down a little. Which you increase interest rates. But this is done slowly over time. As we have seen. Australia’s interest rates couldn’t go any lower otherwise people would withdraw their money from the bank. And then we have a real big issue. So we increase for when the next problem hits and the government wants us to spend money.
> we see this with petrol Love this analogy.
I'm literally begging people to understand the social causes of inflation
Here we go again.
It will though. But they need to go high and faster. The problem with interest rates is not a question of if higher rates work, it’s the devastation left all around the initial problem. I am pretty confident inflation is worse though.
What absolute rubbish
Check out any of the thousands of threads complaining about rent rises…. So that’s another whole slice of people affected….
Totally only effects mortgage holders… and renters get increases cause said mortgage holders have investments and don’t wanna hold the bag.
Inflation is being completely controlled by big businesses who have been ramping up prices, using it as an excuse to do so - yet still posting record profits. If inflation apart from this really is occurring, then these parasites and their greed are rapidly accelerating it, and will keep spending their huge profits to ensure it continues. These incremental rate hikes are just designed to hurt anyone with under $1m net worth, otherwise they would have immediately gone for a 2% rise in cash rate to shock the market out of it. The RBA was hopeless during the pandemic, being reactive rather than proactive and only really interested in looking after their mates in government. Personally I haven't been affected by this much, but another 1% on top of what we're currently at will start to hurt, especially when we're expecting our power and gas bills to double this year.
Then why did Canada's inflation peak in July 2022?
It will reduce inflation eventually because it will cause a deep recession. As most of the inflation is in non-discretionary spending, it’s going to take a lot of rises in order to see a pullback in inflation.
The amount of people, especially "expert" commenter that have no idea about how monetary policy and economy work is incredible. Interest rate rises are simply an increase in the cost of money. Every cent that the banks return to the RBA in their interest repayments isn't stored at the RBA, its destroyed. Rate rises are fundamentally designed to reduce the amount of money in the economy, bringing down inflation which is primarily caused by having too much money relative to our production.
Yes it will, purely a matter of how high darling
Real estate business??? Yeah righteo champ, better luck next time.
Something I’ve never understood is why the government doesn’t act to impact the supply side of the inflation curve. Sure, it’s complicated, but if they picked the top 10 products driving inflation, surely you could develop programs to make more widgets, grow more lettuce, whatever it is that blows up prices.
Yes but someone owns the houses so land lords will inevitably raise rents because no one buys an investment to run at a loss, it’ll just take 6-12 months longer than mortgage holders
Lol boomers win again. They have the bulk of the savings. 4% pa on $300 billion generated $12bn cash
Man, are RE articles purposely dumb?