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Got Interest Rate thread

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I fear it won't take that long and it won't stop at 3%.

Can someone please explain to a simple mind why IR's would drop if risk increases?

If countries start defaulting on their sovereign debt, why would investors supply credit at lower rates than currently, given the risk would have increased. Greece has been unable to stop the cost of credit increasing, why would the rest of the world be able to do such if everything goes to the crap house.

I somewhat understand central banks can lower their IR's but given most countries do not have a pile of money to loan out and have to go to the market to sell debt in order to provide liquidity, why would investors of govnuts bonds and treasuries accept lower interest rates?

I would have thought that situations like Greece and other PIIGS countries would have resulted in credit/debt costing more not less.

Then add to the fact that many developed nations will need to secure more credit if there is a GFC2 why will this result in IR's decreasing.

Please someone help me understand what I assume is quite simple.

Cheers

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If the Greek (well Sovereign Default) Contagion spreads ala Lehmann 2008 we could be back at 3% in 12 months with GFC II.

GFC part II will probably come about in less than 12 months. The interest rate could go nuts either way though.

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The reason is that central bankers still believe ZIRP is a solution to the problem.

I understand that the central banks believe that this is the solution but how do they secure credit from a market at these rates?

If you had $1T would you invest it for 0.25% interest.

Cheers

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Wow. Brazil lifts their Selic rate by .75%- to an official rate of 9.50%.

http://www.theaustralian.com.au/business/markets/brazil-lifts-interest-rates-by-75-basis-points-to-slow-roaring-economy/story-e6frg91o-1225860008961

I've been reading a lot lately about emerging economies. The GFC has certainly changed the world. I'm pretty glad that Brazil et al are not being swarmed by the IMF and World Bank like they used to be. South America has been underestimated for a long time. They've had lots of structural political change. A .75% rate rise though... maybe their housing will become more affordable with this.

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I understand that the central banks believe that this is the solution but how do they secure credit from a market at these rates?

If you had $1T would you invest it for 0.25% interest.

Cheers

You don't you invest it elsewhere via the carry trade. ZIRP is meant to be cheap money sourced from your Central Bank for business and consumers to apparently privide liquidity when thr SHTF. The next step is QE. Its Greenspan-onomics to keep bubbles bubbly.

If world credit freezes and the house bubble collapses we could be at Zirp in three RBA meetings, closely followed by a credit downgrade.

http://en.wikipedia.org/wiki/Zero_interest_rate_policy

http://en.wikipedia.org/wiki/Quantitative_easing

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Unbelievable, but true- the McCrann factor strikes again. This morning, the interbank futures had a leap. The PPI had no effect much, the CPI figures affected the market expectations far less than I expected. I put the leap down to APM's home price index. No, according to pundits. What did it was Terry McCrann's article saying that an IR increase in May is a certainty. Here's what Ninemsn says (the sentment is repeated elsewhere on other articles):

http://money.ninemsn.com.au/article.aspx?id=1046177&rf=true

* Market pricing in around 50 pct chance of a hike next week after columnist and central-bank watcher Terry McCrann wrote that a rise was now all but certain.

* McCrann has a mixed record on calling moves but has been right enough times for the market to pay attention.

Here's McCrann's article:

http://www.heraldsun.com.au/business/terry-mccranns-column/no-rate-escape-this-time/story-e6frfig6-1225859640902

How extraordinary that the guy can have such an influence. I would have thought that the data (CPI) itself would be pretty obvious. Apparently, it takes Terry's analysis of the obvious data to sway the markets. All good, though- bring on the rise. Thank you, Terry. Cearly, the RBA won't give a toss what Terry says and will only go on the data, but still, I like watching the Terry Factor at play- it's fun and funny.

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Unbelievable, but true- the McCrann factor strikes again. This morning, the interbank futures had a leap. The PPI had no effect much, the CPI figures affected the market expectations far less than I expected. I put the leap down to APM's home price index. No, according to pundits. What did it was Terry McCrann's article saying that an IR increase in May is a certainty. Here's what Ninemsn says (the sentment is repeated elsewhere on other articles):

http://money.ninemsn...1046177&rf=true

Here's McCrann's article:

http://www.heraldsun...6-1225859640902

How extraordinary that the guy can have such an influence. I would have thought that the data (CPI) itself would be pretty obvious. Apparently, it takes Terry's analysis of the obvious data to sway the markets. All good, though- bring on the rise. Thank you, Terry. Cearly, the RBA won't give a toss what Terry says and will only go on the data, but still, I like watching the Terry Factor at play- it's fun and funny.

have you thought about a job in the money market plonk?

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You don't you invest it elsewhere via the carry trade. ZIRP is meant to be cheap money sourced from your Central Bank for business and consumers to apparently privide liquidity when thr SHTF. The next step is QE. Its Greenspan-onomics to keep bubbles bubbly.

If world credit freezes and the house bubble collapses we could be at Zirp in three RBA meetings, closely followed by a credit downgrade.

http://en.wikipedia....est_rate_policy

http://en.wikipedia....titative_easing

as long as the germans are signing the cheques we have another year or so to run (although i haven't seen a pen in angela's hand yet). spain will be in the same situation in a ~ year, and have the hand out. by that time greece will have maxed out the german credit card and it will be game on...

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You don't you invest it elsewhere via the carry trade. ZIRP is meant to be cheap money sourced from your Central Bank for business and consumers to apparently privide liquidity when thr SHTF. The next step is QE. Its Greenspan-onomics to keep bubbles bubbly.

If world credit freezes and the house bubble collapses we could be at Zirp in three RBA meetings, closely followed by a credit downgrade.

http://en.wikipedia....est_rate_policy

http://en.wikipedia....titative_easing

Thanks Tinpusher for the response.

If I understand correctly the system we have encouraged is plain wrong and will lead to failure at some time.

I of to look at country property to purchase that I can grow a vegie patch, have some chickens, build a house out of stone, install solar panels to allow me to run my PC and access the internet wireless and live out the rest of my days until the world regains common sense or WW111 has ended or a virus wipes out most of the world population or all bankers are hung from the highest trees in the land.

Cheers

Edited by satanoperca

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Thanks Tinpusher for the response.

If I understand correctly the system we have encouraged is plain wrong and will lead to failure at some time.

My pleasure. Yes, its a crap way of doing business. Basically we are saying its the unborn generations to fix. I had someone with a Masters in econs over for dinner tonight and we basically agreed after a lot of wine that one can do this forever technically. Think about it.

I of to look at country property to purchase that I can grow a vegie patch, have some chickens, build a house out of stone, install solar panels to allow me to run my PC and access the internet wireless and live out the rest of my days until the world regains common sense or WW111 has ended

I wish I could. Once young'un leaves the nest I want to sail off and see what unfolds.

all bankers are hung from the highest trees in the land.

We can only hope. :thumbsup:

Cheers

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as long as the germans are signing the cheques we have another year or so to run (although i haven't seen a pen in angela's hand yet).

The reason would be the upcoming election in NRW on May 9, 2010. No German money will change hands before this date.

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So the people who bought this time last year, leaving the much talked about 2% safety net for interest rates to go up, are 6/8ths of the way to default-ville?:huh:

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cba has already announced they are boosting 0.25% - that didn't take long. i wonder if any of the big four will go for the gold and raise for more. westpac can't take much more flak, but nab might be able to get away with it. i notice they were silent as to their potential actions this time round.

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Economists are forecasting more and possibly bigger interest rate rises to come after today's Reserve Bank decision to lift the official cash rate to 4.5 per cent.

They say Australia's economic conditions are similar to 2007 before the global financial crisis hit, when the RBA set the cash rate at 7.25 per cent and saw mortgage rates reach 9 per cent

:bangin:

http://www.abc.net.au/news/stories/2010/05/04/2890276.htm

Another 275bps is only another $645pm on a $350,000 mortgage. :scared:

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It seems even Rory Robertson thinks further rate rises are coming.

The Macquarie rates strategist Rory Robertson said the bank was declaring ''phase one of momentary tightening over,'' but he said phase two could start within months.

''I think the bank will pause at least one meeting, but as early as July it may have marshalled the arguments as to why policy doesn't need be just neutral; it needs to be restrictive. There is a clear and growing bias for rates to go substantially higher.''

The interesting thing is that the RBA minutes/speeches about the rate rise have hinted that they think that a neutral cash rate has been reached. But they also show no sign of stopping the rate rises. FWIW, I think Robertson could be right.

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This is a pretty big variable home loan hike- sheesh:

http://twitter.com/Canstar_rates

07May10 HSBC increases Variable mortgages by up to 0.75% Eff:N-Ex 07/05 http://bit.ly/5I9E3E

Oh, and the Credit Suisse futures, as some might have seen, are working out the chances of an IR drop next time:

http://www.bloomberg.com/apps/quote?ticker=CSMEETAU%3AIND

Go figure- changing times. Here's an article on it:

http://www.smh.com.au/business/market-turmoil-sparks-rates-cut-talk-20100507-uhxw.html?autostart=1

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If GFC II hits and world credit freezes we will be 3% quick time. Deflationary spiral fears will drive the RBA just like inflation influences their rise.

I really can't see anything lower than say 2.5% since we borrow so heavily from OS.

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If GFC II hits and world credit freezes we will be 3% quick time. Deflationary spiral fears will drive the RBA just like inflation influences their rise.

I really can't see anything lower than say 2.5% since we borrow so heavily from OS.

If our dollar is 90c odd at 4.5% official rates is there any way of predicting what it would be if our official rates were 2.5%? Would it tend to be 50c? Or is it not that simple? I expect if a down trend starts in it you want higher yields to justify holding it?

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