Record low interest rates for record lengths of time fail help the bottom line
Record low interest rates for record lengths of time fail help the bottom line; As the mining boom passes us, the attempt to transition the economy via housing has failed.
Tweet Topic Started: 8 Aug 2014, 05:06 PM (311 Views)
It was meant to soften the blow, but emergency low rates for record lengths of time has only worsened the housing bubble and witnessed the collapse of Australian manufacturing, as high wages to pay exorbitant mortgages sucks capital from the economy and our global competitiveness.
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
The idea that any rise in rates will crash the economy is bonkers.
What is driving the economy towards a crash is the deflationary pressures generated by excessive debt and a rent seeking attitude that blocks genuine economic activity simply because it might undermine opportunities for rent seeking.
The solution is to drive economic activity with micro-economic reform across the economy but especially in relation to land.
Sure that will slow capital gains for existing properties and may eventual cause them to soften but keep in mind what is causing it – an active and vibrant construction industry and lower costs through the productive sectors of the economy.
To combat the deflationary effects of household debt mountain without adding fresh debt (public or private) is a simple task and that is called QE for Struggle Street. That is the perfect anti-dote to the deflationary pressures resulting from people paying down their debts.
Banks will not go bust – but they certainly should have their endogenous money creation powers splayed.
A key part of the program is reducing upward pressure on the $AUS from off shore borrowing. That will help exporters and import competing businesses.
Yes – interest rates will edge upwards as result but so what? That is required in order to discourage unproductive investment resulting from interest rates being detached from reality.
No wants to crash the economy but sticking with the failed ‘lower interest rates are our only hope’ strategy will make it a certainty.
The idea that any rise in rates will crash the economy is bonkers.
What is driving the economy towards a crash is the deflationary pressures generated by excessive debt and a rent seeking attitude that blocks genuine economic activity simply because it might undermine opportunities for rent seeking.
The solution is to drive economic activity with micro-economic reform across the economy but especially in relation to land.
Sure that will slow capital gains for existing properties and may eventual cause them to soften but keep in mind what is causing it – an active and vibrant construction industry and lower costs through the productive sectors of the economy.
To combat the deflationary effects of household debt mountain without adding fresh debt (public or private) is a simple task and that is called QE for Struggle Street. That is the perfect anti-dote to the deflationary pressures resulting from people paying down their debts.
Banks will not go bust – but they certainly should have their endogenous money creation powers splayed.
A key part of the program is reducing upward pressure on the $AUS from off shore borrowing. That will help exporters and import competing businesses.
Yes – interest rates will edge upwards as result but so what? That is required in order to discourage unproductive investment resulting from interest rates being detached from reality.
No wants to crash the economy but sticking with the failed ‘lower interest rates are our only hope’ strategy will make it a certainty.
Asking the housing sacred cow to contribute to its up keep will become soon a necessity!
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
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