You know it's bunkum
- because we told you -
GUVNOR OF THE RESERVE BANK
TALKS THROUGH THE BACK OF HIS NECK
- not likely, not maybe, not probably or noticeably but definitely bunkum-
At its meeting today, the part time Board of the Reserve Bank decided to raise the cash rate by 25 basis points to 3.5 per cent, effective 4 November 2009.
When you read the vapid and highly qualified statement below you'll appreciate why I've been saying for the last year and half that the Government has to take back the role of setting interest rates and start managing all of the economy itself.
LOW INTEREST RATES - WHAT LOW INTEREST RATES?
The po-faced Guvnor of the RBA would have us believe that interest rates are low. That's bunkum - ask any small business owner, ask anyone owning a credit card. What the Guvnor doesn't say is that at a time of record low RBA cash rates, businesses are still borrowing at between 13% and 15%.
At 14%, my Commonwealth Bank over draft is 10.5% above the RBA's cash rate. In the year 2000, when the cash rate was around 6%, the over draft was only 11%. The differential, 5%.
Amex is charging 21% on its credit cards.
So whenever you hear the Guvnor telling us that money is cheap, you know he's talking though the back of his neck.
Businesses and consumers of credit are being ripped off unmercifully by the banks and the Guvnor and the Treasurer couldn't give a damn. Credit card rates have hardly missed a beat. Westpac is 18%. Amex is 20%.
For anyone who doesn't live in bunkum tower in Martin Place, interest rates are not at record lows. Compared with the cash rate they are at record highs.
Stevens writes, 'Housing credit growth has been solid and dwelling prices have risen appreciably this year.'
'Has been solid' would have to be the under-statement of the year. Real estate agents' mobile phones are saturated with drool.
Prices have been rising at a time when they should have been falling. That the Guvnor should gloss over this point is disgraceful. The rest of us will suffer from high interest rates because Australian governments are doing nothing to slow down the increase in housing prices.
While credit for business has been declining, credit for housing, much of it borrowed at low rates of interest from overseas, has increased exponentially, fuelling a housing bubble. How this can happen in the middle of the biggest recession since kingdom come is beyond belief. Goodness knows how the next generation entering adulthood are going to afford to purchase a house.
Higher interest rates will suck more money into the country (to inflate the housing industry bubble), increasing the value of our dollar and sending more or our manufacturing to China. No wonder China is kicking along.
The higher cost of money will ramp up the inflation the Guvnor is so paranoid about.
Stevens and his team of part-timers are completely detached from reality. It is definitely a reserve bank.
Blunt's first law of Bluntonomics
Instead of fine tuning the economy by raising and lowering interest rates, why not fine tune it by raising and lowering taxation - a percent here, a percent there?
- The money stays in the system instead of disappearing into the banking black hole.
- The innocent are not punished.
- If there needs to be a bit of pain then at least you know the money is going to a good cause
like the Future and other rainy day funds.
- The pain (or the joy) are shared evenly by the community.
When interest rates rise it affects people who are not necessarily the cause of the problem.
Blunt's second law of Bluntonomics
Float the currency, float the interest rate.
So there you go. Now you know it's not likely, not maybe, not probably not noticeably or even close to being bunkum. It is definitely bunkum.