RBA ask home buyers & homeowners to carry the "interest rate" can for the economy again.
Australian home buyers and mortgagor homeowners might get punished By the Reserve Bank of Australia with higher mortgage repayments for the mining boom, the Queensland floods and Cyclone Yasi.
Real economy is going backwards
This grim analysis is based on the wider economy going backwards, with house prices falling in all areas except mining boom towns, fruit and vegetables are growing in price rather than in the fields, and the devastation of the Queensland floods will divert construction to remedial and refurbishment damaged buildings and away from building new homes.
These events have given Australia an inflation rate of 3.3% per annum, and that is over the 3% ceiling the Reserve Bank has set as the top line within its framework of control.
Whilst tightening of credit is an important consideration to keep a lid on the housing inflation , I have always thought that in times like these the RBA would do better to make finance and home loans harder to get, by controlling the lending practices of the banks to require higher deposits. The mining industry is relatively small when you look at the employment side of things. But small business and retailing are huge employers collectively and any rate rise will hit them hardest and not do anything to control the investments made by the mining industry.
Is the Consumer Price Index is a "crock".
How do they work out the CPI in the first place? Food, water and utilities is becoming a diminishing part of the CPI basket and food prices, water and electricity have gone through the roof in recent years. So inflation for families is possibly 10% per annum, not 3.3% that the RBA claim it is for the economy. These fake inflation figures more about controlling demands for higher wages than about reporting the rising cost of living in my view. Where are the unions when you need them? Making credit card repayments and mortgage payments higher on top of the highre food and electricity bills burden burden, and at the same time as family payments and welfare payments are targeted for reduction and savings, could fracture the economy down the middle.
Is the RBA toolbox is too skinny.
My biggest beef with the RBA is it likes to keep it simple, too simple in my view. Interest rate control has been its blunt hammer for decades. Haven't we evolved a more complex economy since then that has better more refined solutions. Interest rate rises hurt too many people these days for the result that they give. Controlling banks lending policies seems a much fairer way to control lending and money circulation. Another method might be to offer a rate reduction for people that set a shorter term to repay their home loan. This would force mortgagors into "saving" and take money out of the economy without the need to make homeowners carry a bigger burden without saving money. So whilst economists say that the RBA rate rise is going to happen sooner rather than later, I ask the question why?
Author: Mr Mortgage
