Why Does Growth Matter?

Can anyone help me understand this?

On one of the foxtel business channel's a comentator states;

" If they (the government) are bringing down interest rates they are worried about growth, and if they are worried about growth then where are the earnings going to come from?"

What I dont understand is if you have a business up and running and you are making a decent profit already why do you have to grow?

 

Hi Chomp,

Interest rates are an easy way of controlling peoples spending, remember mid last year when loans were at 9% for home loans?

As interest rates come down, people have more money to spend which will help inflation/growth. This is different to if you own your own business, though if you own your own business and make a profit who wouldn't want more profit?

Cheers,

Dan

 

Thanks ASX that does make a bit more sense now, I was getting it mixed up with running your own business.

 

No worries Chomp,

I think it's going to get worse before it gets better, especially in WA/NT and some of QLD which has relied on the mining boom to carry it through.

I remember about two years ago and the SMH said that it cost the same amount to buy a house in Perth as it did in Sydney. That had my alarm bells ringing as Sydney has about 4 times the population (read 4 times the demand) for property.

With an expected drop of 1% on Tuesday 3rd Feb from our RBA it will be very interesting.

Finally customers are starting to think about diversifying away from term deposits as 12 month rates are sub 4% pa and they can't afford to live off term deposit incomes anymore. Next week they will move down even further!

Cheers,

Dan

 

So are you thinking that people in Sydney are going to be interested realestate again?

 

Hi Chomp,

Realestate and shares as they are returning higher yields than term deposits. Though this will happen when there is more certainty in the economy.

Cheers,

Dan

 

Firstly the goernmetn doesn't bring down interest rates, the RBA does (which is a private institute that doesn't answer to the government). It does so by influencing the Cash Rate, banks use this cash rate and from it set their interest rates. That's why you always here politicians urging the RBA to drop the Cash Rate, and politicians then begging banks to "pass them on".

Well as it stands one of the biggest reasons to grow is, inflation. If you earned $50,000/year back in 1990 that would have been considered VERY good money. If you earn that now, it's just run of the mill.