Tag Archives: cash rate

One Chart Debunks Wayne’s Lies On Interest Rates

20 Feb
Click to enlarge

Click to enlarge

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”.

2010-314--political-party-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!!

 

Stevens – Australia’s Most Useless?

26 Feb

Illustration - John Shakespeare

In recent days the mainstream media have made much of Reserve Bank of Australia Governor Glenn Stevens’ response to comments made by Barnaby Joyce concerning Australia’s rising debt levels:

‘‘There has never been an event of sovereign default by Australia,’’ Mr Stevens told a parliamentary hearing in Canberra. ‘‘I very much doubt there ever will be.’’

Now, don’t you feel reassured? After all, if the esteemed Governor of the RBA is not worried, then why should you be?

Think again. This is the same “expert” who utterly failed to foresee any warning signs of the impending Global Financial Crisis. Indeed, Stevens kept raising interest rates right into the teeth of the GFC, prompting this scathing response from the Daily Telegraph:

The nation’s most powerful economic figure has committed a double betrayal of working families – urging big banks to ignore the RBA’s official interest rate and saying taxes could be increased.

For the second time in a fortnight, Reserve Bank Governor Glenn Stevens has gone public to encourage the biggest lenders to go beyond the current official interest rate and slug mortgagees at a higher rate.

His controversial comments effectively render him useless – because it is a key part of his job as Reserve Bank governor to use official interest rates as a guide for the major banks as to what they should charge on mortgages.

“I can’t tell you at what point rates will come down. I can’t promise they won’t rise. I can’t tell you that, mainly because I don’t know,” Mr Stevens said yesterday.

Note the date of those comments by Stevens. April 4, 2008. His last interest rate rise prior to the GFC, was on March 4, 2008, taking the official cash rate to 7.25%.

Less than 2 weeks after Stevens had again raised Australia’s interest rates, US banking giant Bear Stearns collapsed.

Less than 6 months later, all hell broke loose with the collapse of Lehman Brothers… the biggest corporate collapse in US history.

From September 2008, Stevens had to chainsaw 400 basis points (4%) off the cash rate, in a frantic bid to save the Australian economy from imploding.

Remember that, for next time you hear the media again twisting Stevens words into an alleged putdown of Barnaby Joyce’s concerns.

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