Kincella I'm sorry but keeping rates low is what fuels binge credit and drives asset prices up in the first place and that would put us even closer to the financial position of the rest of the 'smart world'; a maxxed out credit card and asset prices plummeting.
If you think long term, beyond the next mortgage repayment, everything goes in cycles. The boom time, the gloomy time, the really bad time, the things are looking better time and the boom time...
Back in the Keating years (the gloomy time we had to have) we had interest rates in the low to mid teen's... imagine for some reason we went back to those rates... servicing 13% interest on a 400k mortgage would be over 50k a year in just debt servicing requirements... Foreclosures would be on every corner... To my point, what we are doing with driving interest rates lower and lower is to allow more people to borrow more money to buy greatly overpriced assets and lighting a rocket under those asset prices as with cheap credit and the idea that asset prices never go down everyone jumps on the bandwagon.
Then with all that extra money fuelled by cheap credit in the system out comes the nemesis inflation, with the RBA responding via pushing rates up attempting to curb inflation.
Then it becomes even more fun and the RBA is driven into an even tighter corner.
With RBA in keeping rates low fuelling spending and economic growth and unsustainable asset value appreciation, all those who borrowed to the max at those low levels of interest start to, after a 50 to 100 basis point movement come under financial distress, forcing foreclosures and a run out of the assets which have appreciated so quickly from cheap credit.
It's a fine balancing game... How many of the leveraged property investors here could withstand a 50, 100, 200 basis point shift upwards?
