Rising interest rates

[Dale]

It is certainly not my fault, I never voted for Labour.
In Australia fixed rates are offered, but always at a premium and for a maximum term of 5 years. The higher rates on the fixed loans means it is very rare for the borrower to benefit from the fixed rates over the term of the loan and there are significant penalties for paying out a fixed loan early too, so going that way is generally a poor decision.

That's wrong. We fixed our home loan almost three years ago when rates were around 8%. The rate offered (7.5%) was lower than the variable rate. The fixed rate is worked out as the average of what they estimate rates will do. They must've figured rates would go down but got it wrong as rates went up higher at that stage. We enjoyed two and a half years of rates lower than the bank's variable rate till rate decreases brought it under that level start of this year. Now our fixed rates are about to end but we came out massively in front. You can also get any length of time for the fixed rates, just ask the bank.

[rah]

Yes, that seems like a weird way to do it but I guess you then avoid all the refinancing when interest rates change enough.
Originally my home was a 30 year fixed at about 6% but when we redid all the windows and replaced the siding we refinanced to take 20 grand out and switched it to a fixed 15 year for about 5.8%. In about 5 years, I should actually own my house.

[ricketyclik]

The government is still pumping the economy full of stimulus spending and consequently once again just 4 weeks later our Resrve bank has raised interest rates by another 0.25% to 3.5%.

3.5% is still at "emergency" setting - ie, artificially low. The fact that interest rates are rising is because the Oz economy appears to have escaped the recession that afflicted the rest of the developed world.

So the governments spending which does not benefit me in any way has already begun chewing up my weekly income in a big way with these increases in interest rates, with more rises to come rapidly unless the government changes its policies.

The spending has benefited you big time - Australia didn't go into recession. If interest rates rise to normal consider it a lucky escape.

[Ben Kenobi]

The interest rate rise is a good thing. I wish Canada would do the same and let the CDN appreciate against the USD. That would really help me.

[trev]

They keep rising, our interest rates
The Reserve bank this week once again raised our interest rates, for the 5th time in 6 meetings I think. They are now at 4.25%. Many economists are predicting another 4 rises in interest rates this year so that they are 5.25% by year's end.
Of course our stupid government is still maintaining its stimulus packages, having defended them for so long, it is unable now to admit the stimulus was too large and has continued for far too long. It is also trying to deny that many building projects associated with the stimulus has allowed the construction industry to rip huge sums of money from the government for relatively minor projects due to the rush to get them started, they have not maintained proper audit controls on most of the stimulus spending.
After a number of deaths on a botched home insulation scheme due to electrocutions and house fires now in the hundreds, that is one scheme it has been forced to adandon, the cost of making homes safe may now amount to another 3rd of the money already spent on the botched scheme.
So a stimulus that has overstimulated the economy, overstimulated many insulation installers with electricity, over stimulated many homes with too much heat causing fires, and the government still says it was the right thing to do.

[ricketyclik]

They keep rising, our interest rates
The Reserve bank this week once again raised our interest rates, for the 5th time in 6 meetings I think. They are now at 4.25%. Many economists are predicting another 4 rises in interest rates this year so that they are 5.25% by year's end.

Stop complaining Trev, it's because the economy's going well, by international standards. The rate is still below normal, where it would be expected to be if growth were at typical levels (3-4%).

Of course our stupid government is still maintaining its stimulus packages, having defended them for so long, it is unable now to admit the stimulus was too large and has continued for far too long.

It's only finishing what it committed to. You can't stop projects that have already begun. Well, you can, but it's a bit of a waste, don't you think?

It is also trying to deny that many building projects associated with the stimulus has allowed the construction industry to rip huge sums of money from the government for relatively minor projects due to the rush to get them started, they have not maintained proper audit controls on most of the stimulus spending.

I'm not sure whether there is any denial going on there, but I agree the bureaucrats can't administer a project or bargain down a tender worth a damn. Not their money - why should they care? Disgusting, I agree.

After a number of deaths on a botched home insulation scheme due to electrocutions and house fires now in the hundreds, that is one scheme it has been forced to adandon, the cost of making homes safe may now amount to another 3rd of the money already spent on the botched scheme.

There were how many fires out of how many 10's of thousands of homes insulated? That whole thing is a beat up. It only applied to homes where foil was laid across the ceiling joists, which should never have happened in the first place as it's completely the wrong spot even to insulate. Greedy insulation companies who didn't properly train their installers. The companies didn't obey existing OH&S laws, or exercise due diligence. How is that the Government's fault?

So a stimulus that has overstimulated the economy, overstimulated many insulation installers with electricity, over stimulated many homes with too much heat causing fires, and the government still says it was the right thing to do.

Do you think our growth rate is too high? Weren't you the one complaining about job losses a while ago?

[trev]

Do you think our growth rate is too high? Weren't you the one complaining about job losses a while ago?

I do not think you will find any quote where I complained about job losses. Certainly that has never been a concern of mine in Australia. The growth rate is too high. Our trade deficit is far too high caused by excessive consumer spending among other things. Less stimulus would help reduce that. Inflation is too high. Core inflation remains above the reserve bank targets and continued stimulation will not allow it to reduce and in fact will force it higher. The problem is not just the government stimulation but the far greater stimulation coming into play from new mining/gas projects. Together it is far too much and may cause rapid increases in inflation within several years. It is well pass time for the government to stop all this spending and get our budget back into surplus where it will calm our growth rate, our external deficits, and our inflation rate.

[ricketyclik]

Are we certain the economy is no longer in need of stimulus?

[bumfister]

That doesn't look good.

[trev]

Are we certain the economy is no longer in need of stimulus

Very selective use of data. The government briefly gave 21 000 to first home owners who built there own house. It now gives 7 000 (the same amount that has been availble for many years) to those same people, so yes it caused a brief rise in the data followed by a fall. A fall of around 10% in those circumstances is very modest considering the five interest rate rises in the same period as well. But the stimulus needs to end so that further interest rises do not do further damage to the construction industry.

[ricketyclik]

Very selective use of data. The government briefly gave 21 000 to first home owners who built there own house. It now gives 7 000 (the same amount that has been availble for many years) to those same people, so yes it caused a brief rise in the data followed by a fall. A fall of around 10% in those circumstances is very modest considering the five interest rate rises in the same period as well. But the stimulus needs to end so that further interest rises do not do further damage to the construction industry.

Fair points. I guess it could be seen that way.

[Seeker]

"Are we certain the economy is no longer in need of stimulus?"

Is it just me or is there a lot of assumptions behind this question, mostly born from blind faith in certain 20th century economists and their faith in their ability to understand, model, and control markets?

You'd think there would be just a little rethinking of the old assumptions by this point.

[Kidlicious]

Instead of TARP and stimulus they should have cut everyone a check.

[ricketyclik]

Instead of TARP and stimulus they should have cut everyone a check.

Er, they did. We're talking about the Australian stimulus here.

[ricketyclik]

Trev, I'd be interested to hear what you think about this idea. Seems good to me.

It agrees with your premise of reducing government spending.