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  1. #1
    Join Date
    Aug 2005
    Posts
    358

    Default 1% Interest Rates

    It was almost eight years ago. I was sitting in a cafe at Manly drinking what back then would have almost certainly been a skim double shot flat white. I had just finished my last day of night shift which meant there was no point going to bed and wasting the day under the covers.

    In fact it was too hot to sleep anyway and my mind would have been racing with all the opportunities that the four day break and the end of roster would present.

    Something did catch my eye though. The headline perched neatly between the half filled coffee cup and ash try (back then I smoked and it was even legal to do so in a cafe) Read "Zero Percent Interest Rates".

    NSW property markets were moving off the back of pent up demand for housing and cheap money. I read the article, filed it under interesting in the big grey filing cabinet and went about planning a 4 day break.

    Today, no ash tray and the coffee is filter brewed to a reasonable and drinkable strength. It's not Manly this time but the view is better.

    David Koch has written an interesting piece in the Sun-Herald. He proposes that the latest round of interest rate cuts have gone too far, that mortgage stress is "real" and that alot of aussie families and businesses are in for an uncertain future - despite record employment levels.

    The last two rate rises have had the desired effect. The westpac consumer sentiment index has just recorded its biggest fall since it started measuring the confidence of average consumers.

    We are not the US (thank heavens) but David does go on to present some interesting facts about the US economy and the housing market.

    * The fed could cut official interest rates to zero - off the back of a recent .75 percent cut

    * In January the US fell into recession, which they predict will last until the end of 2010 or 2011

    * By the end of this year 25 Million Americans will have negative equity in their home 0r in other words 20% of all homes and up to 7 trillion in Cap losses

    * The Average house price will fall 25 Per cent but will halve in places like Miami and LA.


    Now David is a local financial Journalist and certainly does not profess to be an expert on US matters. However he has drawn from the work of Paul Krugman, professor of economics at Princeton University. Professor Krugman is also a columnist for the New York times.


    The US Fed has taken action. Recently becoming actively involved in the bail out of financial instutitions and making it known that it will print money if it has to in order to bail out others in the future.

    Will US rates hit zero to help bolster this failing economy and avoid another great depression? It's possible but unlikely in my opinion.

    Will the the Australian Reserve continue to raise the cost of finance in this very uncertain global market?

    One hopes not - but given the strong economic data coming out of certain states and the serious pent up demand for housing - it's a 50/50 bet.


    Have a great Day!


    Don
    Last edited by Don and Liz; 23-03-2008 at 02:31 PM.

  2. #2
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,305

    Default

    I wonder if you could ever get a 0% loan which is interest only?

    Then you'd never have to pay a thing until the end of the term.

    David

  3. #3
    Join Date
    Dec 2007
    Location
    Vienna, Austria
    Posts
    2,662

    Default

    The fed has a problem : they are trying to stimulate the economy, but they are running out of ammunition. As I read some where else they have had three strikes and three misses so far. They have put inflation aside for now to focus on the economy. I follow the camp that says this is a mistake and inflation will take off and the feds actions will make the down turn longer and harder than it might otherwise be.

    Now the ECB the Australian central bank and NZ Reserve bank have all retained focus on inflation...............So It is really unlikely that interest rates in Aussi or NZ will be dropped soon. Even if the OCR in both countries is dropped that doesn't mean mortgage rates will follow. If the funds are coming from outside of Australia and NZ then there will be a risk premium attached and the rates banks charge might actually rise ( As they have in NZ recently)

    The biggest issue is what hits have Australian banks taken over sub-prime, the bond insurers and what hits will the take over credit card defaults. I don't think Aussi and NZ banks have yet declared their hands in this matter. I do know some Aussi banks were placing serious money in hedge funds over the last 2 years!

  4. #4
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,017

    Default

    I read years ago that interest rates in the UK in the 1940s almost reached 0% - for lenders, anyway.
    The reason? Everything was rationed, you couldn't buy a new car or other consumer durables, and there were long waiting lists for anything you could buy. Literally, people had money that they simply couldn't spend (in any constructive way, anyway - presumably beer and baccy was available).

  5. #5
    Join Date
    Apr 2006
    Posts
    367

    Default

    Our government's ability to borrow large sums of money at rates we could only dream of sadly forces our interest rates up - We are merely just pawns in a game of political chess. Rates should be like in the USA - fixed for life of the loan - a real handshake deal.

  6. #6
    Join Date
    Feb 2008
    Location
    Wellington NZ
    Posts
    1,802

    Default

    Quote Originally Posted by Davo36 View Post
    I wonder if you could ever get a 0% loan which is interest only?

    Then you'd never have to pay a thing until the end of the term.

    David
    Yep you can but it's around 0.25% from Japanese banks and you need to be part of the bankster gang and cronies you know like Goldman Sachs JPMorgan Bear Sterns whoops there a bit poked at the moment.



    This is how the carry trade is financed and where some of the money comes from to fuel those 20%yoy illusionary gains in housing in the western world.



 

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