The RBA is the only player. It is a monopolist issuer of bank reserves. And like like any monopolist, it absolutely controls the price of its product with the banks acting as the transmission mechanism.
You have made the same mistake as most other Bears. "Believing" the cash rate is controlled by market forces, despite all of the evidence to the contrary (like at 2:30pm every first Tuesday of the month).
If the RBA wanted the 10 year bond yield at 0%, they could do it at the stroke of a pen (or tap of a keyboard).
As George Soros demonstrated to the world, at the expense of the Bank of England, a central bank can dictate an interest rate or a market-convertible exchange rate, but cannot dictate both at the same time.
As to whether the RBA could hold rates at 2.5% here with a 10% bond yield available overseas, it is certainly theoretically possible to do this, of course, but it's an unlikely situation, as yes, the consequence would likely be a significant reduction in the value of the AUD - note that this is the *same* thing as your "money flying out of the country" supposition. $AUD cannot actually leave Australia (other than physically as cash transported in suitcases!) - for every local investor in o/s assets there is a buyer of the AUD that they sell, which must remain within the banking and monetary system somewhere in Australia.
Setting aside from the large amount of cash that *IS* leaving the country each year (AUD is highly liquid and convertible, so it is increasingly used in the international drug/arms/etc trade), the statement that $AUD cannot leave the country is one of the more disingenuous sleights of mouth of monetary theory.
For example, if today a banana costs you $1 and tomorrow it costs you $2, did the price of bananas go up, or did the value of money go down? The convention is to say that the price of bananas went up, but a banana today is a banana tomorrow. The banana hasn't changed, only it's convertible rate to dollars. The real truth is that the value of bananas did not change, only the value of a dollar.
Likewise when the exchange rate declines. No AUD left the country, that's true. The number of AUD is unchanged, however the amount of real goods and services and commodities that can be purchased with the same number of $AUD has declined. AUD hasn't left the country, but it's convertibility has. And because we need to import real goods, services and commodities for our present economy to function, the drop in purchasing power has the same effect as actual capital flight.
In other words, the claim that AUD doesn't leave the country is both true and irrelevant.
My comment pertained mainly to your *second* claim about banks choosing to invest in T-Bonds instead of lending at lower rates to the local market - that is bunkem, for the reasons I explained.
OK, bunkem I admit, but my statement was made to illustrate that you can't have wildly differing interest rates in a global economy. The RBA is limited in its ability to control rates by conditions in the rest of the world. Also, retail interest rates are not decided by the RBA (a common held belief) and that is sort of what this is all about. Anyone buying in the firm belief that we will have low rates for the next ten years is likely to overstretch themselves.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
The RBA is the only player. It is a monopolist issuer of bank reserves. And like like any monopolist, it absolutely controls the price of its product with the banks acting as the transmission mechanism.
You have made the same mistake as most other Bears. "Believing" the cash rate is controlled by market forces, despite all of the evidence to the contrary (like at 2:30pm every first Tuesday of the month).
If the RBA wanted the 10 year bond yield at 0%, they could do it at the stroke of a pen (or tap of a keyboard). They choose to manipulate the short end to meet their policy goals.
Yes, the bears on GHPC in 2007 made exactly the same mistake. You would think they would learn eventually.
Back in 2007, myself and the other bulls on GHPC explained that the RBA would slash interest rates as soon as the GFC arrived, which would ignite a new property boom in Australia, rather than the 40% crash the bears were expecting.
The bears said there was no way the RBA would cut rates, because of inflation. And even in the unlikely event they did cut, the banks would not pass it on, and regardless of what happened, they said the 40% crash promised by Steve Keen was set in stone and could not be avoided.
But the bulls were right. The RBA slashed rates (with inflation still at 5%), the banks passed most of it on, house prices boomed, and then the bears demanded that all the bulls be immediately banned from the forum...
The rest of Kris' shit could well be shit as always - Ask him where his boss's (Billy whats'isface Bonner's) bond vigilantes effed orf to - LOL!
But anyway, yeah, lower IRs make sense to me ... Keep the ole farts in the workforce. Keep 'em paying tax - No retirement for YOU said the 'kitchen' Soup Nazi! ...
Shadow
5 Aug 2014, 09:18 PM
... the bears on GHPC in 2007 ...
... Back in 2007, myself and the other bulls on GHPC explained ...
... The bears said ...
... they said the 40% crash promised by Steve Keen was set in stone ...
... the bulls were right ...
... house prices boomed ...
... and then the bears demanded that all the bulls be immediately banned from the forum ...
Bears are bad 'n stupid 'n evil; Shady is good 'n wise 'n noble - LOL!
Here we hover below Hockey’s self described emergency interest rates, yet suddenly it has become ‘stability’.
No, it’s just shafting those who have practiced sensible management of their finances in order to bail out the more reckless, who have already enjoyed the bountiful harvest reaped via the exploitation of negligent policy together with corrupted Government and institutions.
All cheered on by the overpaid management of our biggest banks and corporations who see that the perpetual growth machine is our only hope for the future.
It is not as simple minded as just wanting lower house prices. For some who still harbour such old fashioned notions, it’s about what is just and fair.
Setting aside from the large amount of cash that *IS* leaving the country each year (AUD is highly liquid and convertible, so it is increasingly used in the international drug/arms/etc trade), the statement that $AUD cannot leave the country is one of the more disingenuous sleights of mouth of monetary theory.
Re the actual physical flight of cash, if/when this occurs, the RBA will likely just print more cash as required, as they do this "on demand" based on the needs of the banking / monetary system anyway. Printing cash to replace physical cash removed to other countries would not be very inflationary either.
Quote:
For example, if today a banana costs you $1 and tomorrow it costs you $2, did the price of bananas go up, or did the value of money go down? The convention is to say that the price of bananas went up, but a banana today is a banana tomorrow. The banana hasn't changed, only it's convertible rate to dollars. The real truth is that the value of bananas did not change, only the value of a dollar.
If the AUD devalues, the price of banana's only increases if we import them, or have to import them.
Quote:
Likewise when the exchange rate declines. No AUD left the country, that's true. The number of AUD is unchanged, however the amount of real goods and services and commodities that can be purchased with the same number of $AUD has declined. AUD hasn't left the country, but it's convertibility has. And because we need to import real goods, services and commodities for our present economy to function, the drop in purchasing power has the same effect as actual capital flight.
Again, while this is true, the statement only applies to things we *have* to import. The local $AUD can still be used to deploy/acquire/utilise locally available resources at pretty much the same AUD nominal cost regardless of the exchange rate - as long of course as the currency is recognised and accepted as the primary means of payment.
What's more, the demand for imported resources/good/services is quite elastic - with the exception of say oil and other "required" commodities that are not able to be produced locally, nearly all other imports could be produced locally if required (over the medium term anyway), or if it became more efficient to do so etc etc. What's more, because our own commodity and primary exports are priced usually in $US, the AUD we receive goes up as the AUD devalues. All this is why a halving in the value of the $AUD (which has happened - remember 2000/2001?), does not cause an instant doubling of the price of everything - the effect is far more muted, and the elasticity of import demand, export competitiveness etc over time works to reduce the impact of the currency value change as well.
Quote:
In other words, the claim that AUD doesn't leave the country is both true and irrelevant.
I see your argument, and I don't think I said anything that disagrees - my original point was that currency devaluation was the same thing as capital flight in effect, and I certainly didn't say it was irrelevant. However, I don't think this is what most people think of when they cry "capital flight".
Jimbo
5 Aug 2014, 09:14 PM
OK, bunkem I admit, but my statement was made to illustrate that you can't have wildly differing interest rates in a global economy. The RBA is limited in its ability to control rates by conditions in the rest of the world. Also, retail interest rates are not decided by the RBA (a common held belief) and that is sort of what this is all about. Anyone buying in the firm belief that we will have low rates for the next ten years is likely to overstretch themselves.
Ok - re your last comment, the risk of over-reach is certainly possible. I tend to think a prolonged period of low rates is more likely to see a large segment of households be able to pay down debt at a rapid rate. This will be a good outcome.
Ok - re your last comment, the risk of over-reach is certainly possible. I tend to think a prolonged period of low rates is more likely to see a large segment of households be able to pay down debt at a rapid rate. This will be a good outcome.
Low rates and increasing home prices can have the opposite effect. People using their properties as ATM's. This was a driving force of the the UK's economic boom 1997-2007. Interest rates weren't that low either (around 7.5% at peak).
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
Low rates and increasing home prices can have the opposite effect. People using their properties as ATM's. This was a driving force of the the UK's economic boom 1997-2007. Interest rates weren't that low either (around 7.5% at peak).
People just aren't doing that as yet. It may happen but habits have definitely changed, as have lending standards.
Any expressed market opinion is my own and is not to be taken as financial advice
People just aren't doing that as yet. It may happen but habits have definitely changed, as have lending standards.
I'm kind of battling to keep a Gen X rellie of mine just a little bit subdued at the moment. Kids are verging on leaving home. Has pretty respectable deposits. Has experienced the shit that's happened over the last 15 years re house prices. Pretty much reckons it's 'normal' now. Wants to set his kids up. And credit is SO cheap ...
It's not easy. 'N made even less easy by the fact I have to acknowledge I could be wrong. This shit gets hard on my head ...
A Professional Demographer to an amateur demographer:"negative natural increase will never outweigh the positive net migration"
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