ozbailout guarantees high futureinterest rates

Was at an agricutural luncheon on Friday in Perth sitting next to the Crawford Taylor, State Manager for WA of Rabobank. Being a Rabobank client I was keen to learn about what is happening to forward interest rates for those like myself who would be keen to lock in rates as far out as marketly possible. I was very interested to hear the conversation that ensued.

The takehome message was clear. The day the Oz Govt moved from essentially being a net provider of money to the market with its previous surpluses to now being a $42 billion dollar net importer of borrowed money, ie the announcement of this stumulus package, forward interest rates spiked violently. The government now becomes a competitor for borrowed monies and this now sets the stage in the longer term for higher interest rates. When it is absolutely clear the short term rates have bottomed, watch the long terms skyrocket.

This bailout package is very very bad for us all. You can't spend yourself rich ...