Financial recovery package or just a band-aid? You decide!
Over the last few weeks there have been a lot of people on TV, radio and on Blogs telling us that the AFC (Australian Financial Crisis) is as good as over.
- Real Estate ‘experts’ are telling us that house prices have started to stabilise and in most cases increase.
- Retailers are telling us how consumer confidence is improving
- The ASX is on the up
- There is talk of imminent interest rate rises
Wow – things must be good. Surely we’re in the clear!?
Hmmm….. take a step back a moment. Have a think – are things really on the up.
Sure consumer confidence is on the up, but what about commercial and business confidence – which is really what matters?
How many empty shops are there in your local High Street? Have you notice how much commercial property is sit empty with For Lease signs outside. Take a look on your way home tonight. You know the one I mean – that brand new building on the corner that has been empty for over 6 months.
The cold facts are that commercial confidence is far from where it needs to be for us to say that we are in any kind or recovery.
Here’s a rather negative but realistic view on where we are at right now.
Things started going wrong last year, so K Rudd threw some cash at the problem. Things didn’t get any better so this year he threw some more money at it and it seemed to wok.
Yes it worked on the surface and helped consumer confidence, but did it actually do anything for a GNP? NO!
So what did the K Rudd financial stimulus really do? The simple answer is that it artificially inflated consumer confidence.
A lot of people ended up with a bit of extra cash which they were encouraged to spend. Retailers were happy, consumers seemed happy all good….. you’d think so, but what happens when the money runs out?
The cash stimulus was a knee-jerk reaction and it was a just a cosmetic fix. The cracks are still there under all the make-up and the political spin!
Then we have the new home owners grants and extra incentives – excellent idea – NOT! Think about it. K Rudd is encouraging people who cannot really afford it to buy homes. Offering inflated incentives and bonuses means that people who could not afford a house 12 months ago, can afford one now. Again on the face of it this seems like a great idea, but what happens when the RBA increases interest rates based on artificially orchestrated consumer confidence? We are being lined up for the biggest fall of all. Has everyone forgotten how all of this started? Over borrowing, over gearing… need I say more?
Over the last 12 months K Rudd and the G20 have been blowing smoke up each others arses telling each other how great they are and how well they are managing the GFC. It’s time to wake up ladies and gents!
What has been accomplished by K Rudd and Co over the last 12 months is pretty poor when you actually look below the surface. Essentially, he pushed Australia into deficit by spending $40+ billion on a band-aid solution which long-term will actually make the problem even worse.
- Interest rates go down
- Government stimulus package
a. Cash payments
b. Insulation grant
c. Home buyers grant - People think they have more money and spend up
- Consumer confidence increases
- New home buyers – buy homes
- Low interest rates, cash incentives, people encouraged to spend spare cash to ‘support the economy’
- House prices on the way up
- Everyone is happy?
- Interest rates go up thanks to artificial consumer confidence
- Cracks start to appear
- New home owners cannot afford repayments as rates increase
- Tax rises to pay off deficit
- Welcome the real recession!
Hold on tight – things could still get a lot worse!
My advice – pay off as much of your home loan now when the interest rates are low – over pay as much as you can to reduce the capital. When rates rise as a result of artificial stimulus you'll be glad you did!
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