Mortgage holders play safe with rate cuts

THREE out of four mortgage holders are taking advantage of lower interest rates to pay off their mortgages faster, rather than instructing their bank to reduce their repayments so they can pocket the saving, according to a survey released today.

When asked by the Australian National Retailers Association if their monthly repayments had changed because of the recent interest rate cuts, 74 per cent of those surveyed said there had been no change.

Of the remaining quarter who had instructed their bank to cut repayments, about half were using the money to pay off other debts such as credit cards. Only 3 per cent said they had reduced payments to spend money on discretionary items.

"Even those mortgage holders who are taking advantage of lower interest rates by reducing their payments are being cautious, using that spare cash to retire debt or help with living expenses," the association's chief executive, Margy Osmond, said, tipping a spending "coma" in February and March
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Mortgage holders play safe with rate cuts - National - smh.com.au

 

No real suprise there. Think all the doom and gloom messages getting out just make people realise that now probably isn't the time to live like a king.

 

So, after all this gloom and doom we can emerge even richer than before. I am sure governments will use it as an excellent excuse to raise interest rates and taxes. This will help them to trim budget deficit. You can see it written on the wall.

 

I think it will be many many years before we can all claim to be richer than we were back in late 2007 with the AUD at near parity with the USD and the ASX down nearly 50%.

Also there won't be interest rate rises for a long long time either, assuming the RBA doesn't go crazy with our own printing press, and it'd take a brave poly to try and implement tax increase in this climate.

 

Chris, don’t bet on this one. US of A already printed enough money to make US$ worth little. UK and EU may follow and then $AU will have to balance some how.

They call them "unpopular politicians" and "economic reforms". Do you remember? “never, ever GST”
It will happen not now but later. Somone needs to pay for all these bailouts don't you think?

 

The US and UK are in a slightly different situation than Australia (at least at this stage) where there governments are bailing out private businesses.

Now ultimately someone needs to pay for that, which will eventually come in the form of more National debt to be paid back in the future or central banks monetizing the debt, ie the printing of more money. There is also just general talk of "quantitative easing" in the US where the FED will just inject liquidity to fight deflation.

In Australia we don't have the rampant deflation in housing prices to cause "toxic bank owned assets" which need to be taken off banking balance sheets to make them solvent again and able to lend. So we don't have need for anything more than fiscal stimulation along with a loose monetary policy at this point to aid our slowing economy.

Nonetheless there has been a huge amount of wealth destruction in Australia as well, and there is definitely downward pressure on prices giving rise to deflationary risk. Most economists are predicting small falls in housing prices, but due to circumstantial difference to the US and UK our house prices look like they will only fall 5 - 10%, which are quite modest in comparison to the rest of the developed world.

Anyway the RBA will more than likely will want to avoid as much deflation as possible as it can be quite destructive in recessionary environments when businesses are already struggling. So the RBA may be planning to do a little bit of its own printing if it runs out of room to move with interest rates (unlikely at this stage), but if it does happen it is more than likely that it won't be anywhere near the scale the US and UK will need to resort to.

Well if you are talking about Australia, there isn't much to speak of in term of "bailouts" yet. The present fiscal stimulus package will just be absorbed into the budget and processed like any other surplus or deficit.

My belief that we need to increase GST centers more around increased equality of taxation and a movement towards improving our account account deficit.

In terms of equality of taxation I believe that under the current tax system our society will become unsustainable given the way the demographics of Australia (along with most developed countries) are trending. This is being based on the growing number of retirees in our society, who will be paying little to no tax yet will be one of the most expensive segments of society given their pension and health requirements.

This is unsustainable and will create inequality in the long run despite our super savings. I also believe that the way the tax system is setup (largely around income tax) diminishes the incentive to work harder once thresholds are reach, which is ultimately bad for an economy in the long run, especially when it is arguable the top income earners in Australia are often the ones that drive an economy in terms of innovation and business.

The other major argument for increasing the GST is to reign in our ballooning current account deficit, which is a result of Australia buying lots of overseas good and services (imports), but not selling enough goods and services to overseas countries (exports).

The reason upping GST to help this is because, GST is payable on imported good, so for example if you were to buy a TV from JB HiFi you are paying GST when you buy that TV even though it was produced in Japan. When Australian businesses sell their exports their customers aren't required to pay GST. So basically what raising the GST would do is increase the costs of imports (albeit with the cost of all other goods and services) which would reduce consumption without increasing the price of exports to our customers.

With this said, I'm not sure what bearing the introduction of the GST had on the current account deficit back when it was first introduced, like I don't know if upping the GST then dropping income taxes would ultimately result in a better current account position, given that lower income taxes you'd think would lead to increased consumption (including consumption of imports). Theory and practice seem to often have the habit of not meeting eye to eye.

If anyone knows any good reference sources that analyse the GST and current account relationship I'd love to read it.