Treasurer Wayne Swan has never tired of telling the Australian people that interest rate cuts are a sign of the government’s good economic management:
Dec 4, 2012 – Treasurer Wayne Swan says the central bank’s decision to cut the cash interest rate follows the federal government’s prudent management…
“Today’s rate cut from the Reserve Bank is the early Christmas present that hard-working Aussies deserve,” Mr Swan told reporters in Canberra.
“We’ve now had the equivalent of seven rate cuts over the past year and of course that’s been made possible by the government’s economic management, strong budget management and of course, contained inflation.”
I could include many more examples. Except there would be no point. If you have heard Swan making these self-congratulatory noises once, you have heard it many times.
The truth, of course, is completely different.
When interest rates are cut, it is not a sign of good economic management.
It is a warning sign that things are going to poo:
Dec 4, 2012 – The Reserve Bank has cut the cash rate to its lowest level since the global financial crisis, following a raft of weak economic data that showed pessimism in the jobs market, a slowdown in mining activity and lower-than-expected retail sales.
The RBA cut the cash rate by 25 basis points, or 0.25 percentage points, to 3 per cent, which is the lowest the rate has been since the central bank started setting rates in 1990.
It matches the setting in April 2009 at the peak of the GFC, when the global financial system was in meltdown and the RBA was trying to prevent Australia slipping into recession.
That’s right. It is the important fact that Wayne and the rest of the Labor Party are conveniently forgetting to mention. The present official interest rate is deemed by the RBA to be an “emergency low”.
Take another look at the chart above.
See that little bump up, brief plateau, then fall in interest rates following the big GFC cliff dive?
Technical chart analysts call that a “dead cat bounce”.
Now, lest any reader think to accuse your humble blogger of partisan bias against Wayne and the ALP, let us not forget the LP’s history of lying on this topic.
Many will recall John Howard’s claim that “interest rates will always be lower under a Coalition government than under a Labor government”.
Think about this.
If that were true – and the chart above proves it is not – then what Howard was really saying is that “the economy will always be weaker under a Coalition government than under a Labor government”.
The usury rate formula is very simple to understand.
When the economy is strong, the vested usurers raise usury rates, to increase their profits.
When the economy is weak, they reduce usury rates, to “support the economy”. That is, to prevent their Ponzi scheme from imploding.
When interest rates are falling, it is not a great time to take out a loan. Despite what the vested usurers and their many mouthpieces in the media and real estate sales industry tell you.
It is arguably the worst time to take out a loan.
It is a warning sign that the economy is weak. That unemployment is likely to rise. That your job may be at risk in coming months.
And that the vested usurers are on the back foot, trying to prop up their Ponzi scheme.
DON’T BORROW NOW!!