Other people's low interest money. The scourge that destroyed the US and the European economies.

Is the RBA right on the money with interest rates?

A lot of the Australian media is pushing the story that  interest rates are too high. But is the RBA on the money on this one?

Everybody seems to have a fixation and an opinion on interest rates these days, and you would think that lower interest rates would fix everyone's problems the way the media is attacking the RBA [Reserve Bank of Australia] these days.

But there are a growing number of people who actually want higher interest rates, especially the self funded retirees that gravitate to savings deposits. For them the higher the interest rates, the better.

The fact is that the RBA has two primary functions it uses interest rates. 

1. To contain inflation. And that band has been set at the Goldilocks rate between 25 and 2.8%. Higher or lower it acts.
2. To keep unemployment low.

On the basis that these two factors have been delivered, how could anyone argue against the RBA settings on rates?

Why low interest rates have destroyed the World Economy

let's keep this simple so anyone can understand it. 

What is the Euro, the US and even Australia's greatest problem? 

People have spent too much on over priced assets. Now they pay with higher interest rates and falling asset values. They are caught holding the problem. In Europe those interest rates are going to be sky high.

What made them do that?
They had cheap money thrown at then and they could not resist it.

What we are seeing now is two things.

1. The consequences of that spending binge, as people struggle under that debt and interest rates as their assets deflate.
2. Vested interest insiders pumping up and then deflating the markets with rumours of fixes and ruin, to give them the margins to profit of both rises and declines in values of shares.

The result is that people are constantly bombarded with false information that is repeated in the news. That fact is that a depression is spreading over Europe, and Governments have to force people into lower home values and suffering with lower expectations, or revert to their own currencies and deflate that value of their currencies, and so the value of assets by using the markets. And that means the break up of the Euro.

That's why Britain was wise to realise that it had to retain the Pound, and keep that possibily open to them.

The nonsense we here about interest rates.

What are people saying we need to do? Lower interest rates. Why? So people can suck up more debt, and buy over priced homes, and get retailing at the dizzy heights it was when people were spending like there was no tomorrow? They must be kidding.

If or China slows buying are minerals, we will have to deflate the value of our assets, so isn't it better not to add fuel to the fire now? BUt we have no control over that because we don't control the Euro, or the Chinese domestic economy or the US economy.

The Euro issues, and how it affects us.

There is also a lot of bellyaching about the Euro and how it affects us. The rise of the prophets of doom, headed by their "poster boy" Tony Abbott. Although I am sensing a turn in believing he is a contender for leading the Nation.

What caused the change?

We see great numbers on Australia's economy, so even though interest rates are lowered, the AU$ is rising.

Everyone is waking up to the fact that the Euro problems have been around for four years or more. And they won't go away in the next four years. In fact they won't go away in my view till the Euro is disbanded, or Europe becomes one political power, and that latter won't happen.

Australia will never have that problem because we have a floating Currencies and are the masters of our destiny. Keeping interest rates high is the solution to the problem, not the problem.

What is the connection to low interest rates and the Euro problem?

Its about Nations spending too much of other peoples' money because it was cheap. That created an illusion of being wealthy when you are not.
What does lower interest rates do. Make people want to spend other people's money. The cause of the problem in the first place.

My advice on interest rates to joe public. 

• Cut up your credit card. If you can't pay cash, you don't need it.
• If you don't have the money, don't buy it. 
• If you see a car ad with a 2.9% interest rate, keep walking! that's why we got into this pickle in the first place.

Yes I have said that the interest rates were set too high, and should be lower, faster.

But was I right? The figures on the economy have vindicated the RBA and proved me wrong.

Will we see more easing in interest rates. 

We probably will see lower interest rates, but hopefully that will not rise house prices, because they are already too high.

• Low interest rates and easy money caused the problem we now have.
• Lower interest rates will not fix it.

To those that link the Australian economy to the Titanic, I say this.

The iceberg was low interest rates and easy money. That is not the solution to a stronger Australian Economy.
The answer is people saving more, and spending less, so we don't have to borrow money from Europe to meet lending demand.

Interest rates will go lower, but don't let that make you spender too much on your next home. We happy with less. Less home, less gadgets, less debt, less junk, less mortgage.
Source: Mr Mortgage