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inflation woes « Previous | |Next »
March 4, 2008

According to the logic of the market, if things get too tough in western Sydney due to the shocks and pressures created by the Reserve Bank raising interest rates, then it is best to sell up, pack your bags, kiss the Emerald City goodbye, head west to Perth and make your fortune quicktime.

Inflationstrike.jpg Martin Sharpe

It's boom time there, the Chinese are our friends, and there will be little dislocation or alienation as the corrupt Labor Party culture will help foster the relaxed and comfortable feeling. And all your friends, being rational economic agents operating in terms of self-interest, will all follow suit. Only the irrational ones will continue to satisfy their desires in the low growth world of an expensive Sydney.

The purpose of any further interest rate hike in March will be to dampen domestic demand and push unemployment back towards 5 per cent. In the Canberra Times Peter Martin observes that:

The inflation we do have right now is fuelled by climate change (higher energy and water prices), a worldwide food shortage (higher grocery prices), higher oil prices, higher rents and the mining boom.Higher interest rates will dent none of these. But they will crunch the economy and push people out of work.

That makes it difficult to keep up the mortgage in western Sydney. More foreclosures will then happen when the Reserve Bank increases interest rates.

The Reserve has increased interest rates by .25% to contain inflation, whilst using language of a ''substantial'' tightening in financial conditions and ''tentative'' signs of a cooling in demand:

There is tentative evidence that some moderation in household demand is beginning to occur with business and consumer sentiment softer recently and household credit demand slowing somewhat. The extent of that moderation is uncertain however.

| Posted by Gary Sauer-Thompson at 6:48 AM | | Comments (11)


It is startling that the only real weapon that can be used is so blunt.

It's like having dams on two different rivers. One is threatening to overflow, but you can only open the spillways on the other dam!

We have a largish mortgage (courtesy of having to relocate to Melbourne) and the rises are beginning to cut into our comfort zone.

I can imagine. Martin says that interest rate rises are designed to tackle wage inflation, which we don't have in most of the country. So it is a very blunt instrument.

The Reserve Bank still tends to see the unemployment rate as the key indicator of the labour market, to assume it measures the reserve army of workers, to conclude that they are running out, and to assume this will unleash a wage explosion. But what if the jobs growth of the last four years has been supply by immigration not the domestic reserve army of workers (single mums, long term unemployed, welfare recipients etc).Tim Colebatch say in The Age that:

Is our reserve army of workers running out? Far from it. At last count, in September 2006, we had more than 1 million people the Australian Bureau of Statistics classed as "wanting to work but not actively looking". We had another 576,000 "underemployed", mostly people in part-time jobs who want full-time work. And, of course, we had half a million unemployed.

These are the reserve army from which our new workers come. So we are far from full employment.

KPMG released a population growth report late last year that breaks it down a bit

The 6PM news showing Krudd07 and his dope-smoking Treasurer crying those crocodile tears over another interest rate spike was an emetic event. Wasn't it just a few short years ago that McMansion owners were viewed by the ALP as being shallow and grasping types? Now all of a sudden their pain and distress creates shock waves in the ALP. I'll bet Krudd07 will even go so far as to block the doorway of John Smith's house in Mudville in an attempt to bar the bank's repo man from entering.

Just as it was with Keating, Swan's first year as Treasurer could be his best because he can blame the other mob for hopeless financial management.

During tough times like the present our leaders usually head for the Qantas departure lounge to escape the unpleasantness of depressing headlines and the ululations of the canaille.

Part of Swan's job is to be hated more and sooner than Rudd. That time will come there is no doubt of that. By the time those from Mudville get to Rudd. Well, it ain't going to be nice.
I said once before that Rudd will be the most hated PM ever. I still stick by that.

Rumpole QC
Hard times requre hard men, hard policies, and hard decisions. That's the style of government--we have to do this---they are selling for the media headlines.

They--Swan + Tanner ---are denying that their hard policies etc will not effect economic growth. You can squeeze demand and still keep the growth going. There will be no uneemployment increase and no foreclosures by working families.

There is more bad news to come for us mortgage holders.The premium Australia's banks now have to pay to borrow money from other banks had soared to more than 0.5 percentage points, five times its usual level.

So far, the banks on average have passed on just 0.15 percentage points of this to home buyers.

The banks could soon ration credit to cope with surging demand for loans from companies that can no longer raise money independently on world markets. This could see higher hurdles set for home buyers, such as requiring sizeable deposits.

I thought that a thousand people a week were going to south east Queensland.

Isn't Melbourne's population growth increassing — the city is now expected to overtake Sydney as Australia's biggest city by 2028. The boom-town plan for a bigger Melbourne is just spin?

The latest string of official interest rate rises is hurting more than usual because house prices - and hence home loans - are double or treble what they used to be.

The low interest rates meant that existing home owners moved to better homes by borrowing a lot more. They succeeded in bidding up house prices and lumbering themselves with a lot more debt.

I am beginning to see a slowing of the housing market in some areas. The lower end of the market here where the first home buyer and the small investor buys in I have noticed that the agent signs change after the first month. The house stays on the market but a new agent takes over. This means that many buyers/investors are out of the market. Either they cant get in or are waiting to see what happens.
It is expected that those first home buyers that bought into house and land packages on low deposits will fall first. Some of these people have rates of 11% because they needed to take it to get in the market.
Car sales will dry up soon too. I expect another car manufacturer or 2 to start talking of closures soon.
There has already been a slowing of Logistics related jobs in Saturdays papers.

The first domino is wobbling.