Have these people never heard about this thing called the market?

As I sometimes mention, the only area I really disagree with Donald Trump about is interest rates. Keeping rates high enough to sort out good investments from bad actually makes an economy more productive and growth oriented. The Fed is trying to harm the President but may actually be helping him create the economic boom the American economy is surely enjoying. It is possible for rates to be too high, of course, but it is also very possible for rates to be too low. No chance in the world central banks have the slightest understanding of any of this, or at least little chance given how they behave.

Let me give you a very clear example of pandering to economic ignorance:

The big four banks are reaping an extra $14bn a year in interest ­repayments after withholding a quarter of all Reserve Bank rate cuts since 2011 while at the same time reducing term deposit interest rates in excess of official cash rate reductions.

An analysis of standard variable rates for mortgages and interest rates paid to savers, carried out by comparison website RateCity on behalf of The Australian shows standard variable rates have fallen by just 2.99 per cent since October 2011. Over the same period, the RBA has reduced the cash rate by 4 per cent.

The big four banks’ margin on average standard variable home loans has grown to 4.05 per cent over the cash rate, wider than the 3 per cent difference when the RBA began its latest round of monetary easing in 2011.

The margin is now double the 2 per cent margin that existed ­before the global financial crisis.

And while I can see why the PM has these views, since he, too, must think the lower the rate of interest, the stronger the level of investment will be. But this is just wrong.

Scott Morrison rebuked the big banks last week over their failure to pass on in full the RBA’s Oct­ober rate cut of 0.25 to a record-low 0.75 per cent. After the rate announcement, the CBA cut its owner-occupied rate by 0.13 per cent and ANZ by 0.14 per cent while NAB and Westpac cut by 0.15 per cent.

“Mortgage holders … have a reason to be disappointed in the banks, basically, profiteering,” the Prime Minister said.

He was only “disappointed” from which I assume he does not intend to wield any big stick at the banks. Hope so. Labor of course understands none of it:

Opposition Treasury spokesman Jim Chalmers said on Sunday Labor would consider, as part of a broader raft of potential packages, whether to increase the 0.06 per cent tax on the big four banks, plus Macquarie, to increase competition in the sector….

“All of these options should be on the table,” Dr Chalmers told Sky News.

Higher taxes to increase competition! What economic buffoons these people are.

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14 Responses to Have these people never heard about this thing called the market?

  1. JC

    Higher taxes to increase competition! What economic buffoons these people are.

    Insane right, but that’s par for the course coming from the Liars. However, lets be clear minded about the banking sector. This is a government protected oligopoly that’s become even more protected since the GFC.

    The level of regulation is absolutely incredible. In fact the people who run banks these days are the compliance and legal. You can’t take a slash without it going through compliance.

  2. MPH

    I wouldn’t put it past the Don to be running reverse psychology on the Fed but I still think the currency, interest rates, the deficit and the Federal Reserve are both his biggest challenge and biggest opportunity to leave a perpetual legacy.

  3. I_am_not_a_robot

    Bank-bashing is senseless, nowadays depositors, borrowers and shareholders at one time or another are all the very same people.

  4. Goanna

    Have these people never heard about this thing called the market?

    They prefer not to hear the truth Steve.

    The market scares the living daylights out of them.

  5. Rafe Champion

    What is this thing called the market?
    Shorter title following Alan Chalmers “What is this thing called science?”
    My supervisor in HPS at Sydney Uni, made enough money to buy a small farm in the Hunter Valley!
    Eat your heart out Steve:)

  6. Sean

    The strong US dollar hurting debt holders and slowing global growth. I think Trump is probably more short term focussed (like all politicians who are nearing an election) and wants the fed to drop rates.

  7. Sean

    There’s a lot less money in higher interest savings accounts for the banks to lend out, surely that’s causing their borrowing costs to be higher than when rates are at 4% etc.

    It’s not going to help the overall economy that many retirees are relying on interest on cash are now getting less money, thus leading to lower consumption anyway.

  8. Karabar

    One can only imagine the prosperity this country might enjoy if, decades ago, public policy had refrained from feeding the frenzy that is the housing market.
    Rather than invest available capital in productive enterprise, the Aussie Battler has been hoodwinked into investing in more and larger McMansions.
    Just imagine if cooler heads had prevailed, and the cultural norm was to prefer clean and affordable housing of a moderate means, and, shunning extravagance, had ploughed investment capital into manufacturing enterprise and research and development!

  9. MPH:

    I wouldn’t put it past the Don to be running reverse psychology on the Fed but I still think the currency, interest rates, the deficit and the Federal Reserve are both his biggest challenge and biggest opportunity to leave a perpetual legacy.

    Don’s no dill. He knows that if he pays off the national credit card, the next Democrat government will blow it out again.
    Just like what happens in Australia. Morro won’t pay it down for the same reason. In fact, that was the pattern. There was a huge amount of people squawking over the deficit and how the Libs get in, pay it off and then Labour gets in and maxxes the card.
    So now that Morrison is in and he refuses to pay off the card, the same people are bitching about our deficit.
    Morrison needs to drop the PAYE tax rate by 50% and let Labour bear the odium of raising them again.
    But he won’t because the Government is a Big Club and we aren’t in it.

  10. Tim Neilson

    Labor would consider, as part of a broader raft of potential packages, whether to increase the 0.06 per cent tax on the big four banks, plus Macquarie, to increase competition in the sector….

    Whatever you think of the Silver Doughnut, it’s one of Australia’s great success stories. It hasn’t existed for even a full 50 years but it’s now (among other aspects of its business) the world’s largest infrastructure manager, operating in 25 countries.

    So let’s kick the shit out of it with selective taxes on its Australian banking operations.
    That’s sure to encourage others to invest their hard earned to build up a successful Australian based finance group.

  11. max

    Gary North:
    The Federal Reserve System is not about making money at the expense of the government. It is about using a government-granted monopoly over money to regulate the economy to the benefit of a handful of large banks. This has always been its primary function.
    The banking system is a cartel. The Federal Reserve System is the cartel’s protector and enforcer.

    END FED and fiat money

  12. Squirrel

    Australian politicians (and much of the commentariat) have a monomaniacal obsession with mortgage interest rates – which seems to overlook the fact that the majority of households don’t have a mortgage and thus might be interested in hearing their elected representatives talking about the banks ripping off depositors, not just borrowers.

    As for PDT, he was actually critical of low Fed rates prior to the 2016 election and made some pointed comments about the extent to which the US economy was being propped up by cheap, easy money.

  13. John A

    The big four banks’ margin on average standard variable home loans has grown to 4.05 per cent over the cash rate, wider than the 3 per cent difference when the RBA began its latest round of monetary easing in 2011.

    A meaningless measure. I am sorta surprised that the measure is not taken between credit card rates and the cash rate – a much more dramatic difference politically. It also demonstrates an abysmal lack of knowledge about the setting of lending rates including the factoring in of risk premium, bad debt allowances, duration of loans etc.

    Overall bank margins between lending and borrowing (known as the “spread”) might still be only 1% but, even if the spread has widened, the banks love low interest rates because it is so much better for the bottom line to have a spread between 3% and 2% than between 12% and 11%.

    Cheap politicking because everyone loves to bash the banks but nobody bothers to move their accounts out of “the system.”

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