<div class="text-justify">

![image.png](https://images.hive.blog/DQmYdJ9qdWGmyPK3fnBxMJQ7v6KNzUaX43tEET8TDrRDKX9/image.png)

I found this chart interesting - it is the Australian Stock Exchange (ASX) market expectation of the interest rates based on the trade of futures. While the Reserve Bank of Australia (RBA) has said that they aren't expecting to raise interest rates until some time in 2023, the market seems not to trust them and expect 3 rate hikes this year alone, as the market is expecting about an 0.8% increase and the RBA normally increases in 0.25 percentage points at a time.


![image.png](https://files.peakd.com/file/peakd-hive/tarazkp/Eos6dpCQN4tuNGhFUeBKgkVthwJUEk9Dx2pRoDt7nc7MFoE67jAhFi4wGPArXz1rFcC.png)

Which will be correct will be interesting to see, but the head of the RBA didn't actually say they wouldn't raise them, they said they wouldn't raise them if the inflation rate didn't increase outside of their 2-3% band, but if the US is anything to go by (and the US market impacts all markets), they ended 2021 with a 6.8% inflation rate, so what are the chances of the Australia rate staying below 3%?

>“The Reserve Bank Board will not increase the cash rate until actual inflation is sustainably in the 2–3 per cent target range,” - *RBA Governor Philip Lowe*

Chances? *I'd say pretty slim.*

Why I find this interesting is that they have said that they won't *repeatedly* over the last year and I suspect they might actually stick to their word to save face, but that is just going to make matters worse, by kicking the can down the street - at least for the next few months. 

2022 is an *election year* in Australia and no government is going to want to go into an election after encouraging homebuyers into spending to the outer limit of what they can afford into an extremely inflated housing market and then, forcing interest rate hikes onto them so they can no longer pay the mortgage. 

*That'd be silly.* 

The election is in April, so May for the first increase?

The question is going to be, who is reading *the future* the best, the market traders or the average Australian? The market is expecting rate increases, but is the average Australian paying attention to this chart or, are they paying attention to the words of the RBA stating no interest rate increases this year?

Now, even if the interest rates don't happen this year, but the economic conditions call for them, this means that next year, the RBA will raise them and then double down in order to claw back the postponements from 2022. This means that regardless, mortgage payers are going to be in for a world of hurt and, the housing market bubble is going to burst on the higher cost of borrowing. This means that those who have the high-end loans and are stretched tight, are likely to sell as early as they can in order to cover and recover their deposit the best they can, collapsing the market like a house of cards.

This isn't my area at all, but I am glad that I insisted on collaring the house loan we took, as while it is more expensive per month, it effectively caps the interest rates at a *far lower* level if interest rates do start moving rapidly. In some way, it is a little bit of piece of mind and I made the call because the interest rates are the lowest they have ever really been, so there is only one way for them to go. Worst case scenario (personally) is if the interest rates stay very low for the next ten (nine now) years, meaning that I am overpaying for the loan, but at money "this cheap" that isn't too much of an issue. 

![image.png](https://images.hive.blog/DQmRGKycVzNxWB3hYCtkKPnqunkUdGya4sChgB1ceHDH7JJ/image.png)

>Most people can't even afford to pay their mortgage at the 1998 "low".

The issue would be if instead of the lowest rates in history, interests were to return to the 4,6  or 8 percent range that were in the mid 90s, or in Finland, the 14% in 89-93. During that period of high interest rates in Finland, house prices fell by *50%* rapidly. In Australia in 1990, the interest rates peaked around 17.5% - which is *credit card level rates,* and I don't think you would want to have a 1.3 million dollar loan on a home where you were stress-tested at 4-6% for and, still have 25 years left to pay. 

Australians who are old enough might remember Paul Keating saying, "The recession we had to have".

If you want to read a little about it, here is a [Wiki article](https://en.wikipedia.org/wiki/Early_1990s_recession_in_Australia)

Will the *policy makers* get it right this time? Well, in the past have they? If you read that article the measures taken were pretty grim and I remember the struggle my parents had during those years, and the years of recovery as things "improved". 

Economic policy these days is largely irrelevant for the economy in many ways, as the economic conditions that the mechanisms have been designed to control, are no longer the same kind of animal. A lot of the policy has been designed a hundred years ago and at that time, there was not the globalized conglomerates, nor the myriad investment vehicles that there are today - it is far more complex than it was, but without anything other tool than a hammer in hand, everything gets treated as a nail. And at the end of the day, it is the average person who gets bent over and nailed hard.

I don't think it matters where a person lives in the world, economic conditions for most are going to deteriorate and become untenable to maintain current levels of lifestyle - and most aren't exactly "living it up" out there. At least, not on their own dime. Housing debt is up, consumer debt is up and eventually, the chips will be called in. What happens when the chip bowl is empty? 

It is going to be an interesting few years ahead, as the excesses of the last couple years will come home to roost and I suspect that again, it will be labelled as conditions "we had to have" in order to keep us safe from Corona. But, it will be a scapegoat excuse that covers a period of extreme wealth transfer from poor to rich and then as the markets fall and the poor lose even more, those who have made all of those gains so far, will *buy the fucking dip* - because they can. 

Taraz
[ Gen1: Hive ]

</div>

Posted Using [LeoFinance <sup>Beta</sup>](https://leofinance.io/@tarazkp/the-back-of-the-wave)