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Dean Procter

Dean Procter

Dean Procter - Transinteract

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A place to share stuff that isn't at all fintec related but is amusing, absurd or scary.

A Little Follow-up on the Treasurer's Knobs - noneconomist

07 November 2008  |  2011 views  |  0

A little follow up on knob-twiddling on those Treasurers machines. In countries where there are multiple levels of government, such as federal and state, we have the unfortunate scenario of too many Treasurers. Now those State Treasurers only have a TAX dial to turn.  Seeing they've all spent up big in the boom and now are all going broke, they are forced to twiddle the TAX dial as far to the right as the voters can bear.

That scenario is a little inconvenient for Federal Treasurers because it negates the effect of their twiddling the RATE dial to the left. If they muck around and only give it a girly twirl, the net effect is zero.

Such is the situation in Oz where the various State Treasurers are all giving their TAX knob a big boy's turn to the right.

Considering that, I think it'll take a lot more than the girly twirl we got on that RATE knob in OZ the other day to shift consumers.

I can't help but remember that if you don't have commerce, and income, then there is no chance of repaying your debts. Government spending on infrastructure and such can only go so far, like maybe back in 1960, now it doesn't even rate a Treasurers knob.

Another way to see this is to look back at how fast rates have been increased in the past when growth or inflation was an issue and compare the current economic collapse. Its easy to see that those dials should have moved further, faster and it would have had more impact if it had been one big adjustment, rather than the 'girly twirls' which seem to be having insufficient effect.

For those of you who want a comparison Australia's Commonwealth Bank reduced it's standard variable home loan rate to 7.74% today. That is between .75 and 2.0% higher than in the US and much higher than Japan. 

I note that after started writing this (I was distracted by history in the making) I heard the Australian Treasurer Wayne Swan announced that the multi-billion dollar Oz surplus had disappeared. Who knows where to, probably the same place our retirement funds and TAX dollars have gone. Sounds like he's going to want twiddle that TAX knob to the right too.

Is all this knob twiddling the 'decisive' action we were promised? Hmm. Perhaps they're saving it for later.

 

This is only my personal opinion, as light-hearted as I can be considering the subject matter but I am a fully qualified non-economist if that counts.

 

Comments: (1)

Dean Procter
Dean Procter - Transinteract - Sydney | 09 November, 2008, 05:47

Aussie Home Loans have since reduced their rate to 6.99%.

The rate thing is a good way to put money into mortxgagees pockets, but only if the rates on the existing loans is reduced.

This is harder in the US where there are a lot of fixed rate loans. Obviously the banks aren't going to voluntarily reduce the rate on a contract they already have, and you can hardly expecty them to. However it's the people who are in homes, paying mortgages, whom you want to get spending, at least a little.

The problem with the bail-out is that unless the bank itself spends the money in the mall and the corner store we're all in the same sinking boat, and we know that isn't going to happen.

If some banks are paying 6% on deposit accounts then the lending rate isn't going to stay down for long is it? Either that or the rates paid on deposits will fall, the banks can't pay that much more than the Fed rate. Given the funny business we've seen recently, why wouldn't a bank get some money form the Fed and deposit into another bank paying 6%? Haven't there already been some borrowing it to put in back on deposit in the Fed etc?

No matter what the rates are can't really extend credit willy nilly because everyone has been naughty and borrowed too much. That normally means higher rates.

We put capital into banks so they are solvent and improve their lending ability. We lower the rates but banks don't lend it  anyone.

We have a lack of lending going on so we make money even cheaper by lowering rates further.

We can't really lend any more to consumers, because they are already carrying too much debt. The economy is by now so bad that they don't want to borrow, or spend.

The mines and factories are closing because no-one is buying.

The banks are losing because the borrowers aren't able to repay their loans, first the factories, then the workers.

The homeowners are being put out of work and won't be able to repay their mortgages.

Where does the problem lay?

Who has done the least wrong?

The person who has been paying their mortgage, and may now lose their job along with their retirement nest-egg, and then their home?

If we are going to give money to anyone then shouldn't it be them?

Reduce the rate they are paying on their fixed mortgage and give them more disposable income to spend in the mall.

If you cannot reduce the rate, ie the bank won't, then the government can give tax breaks to homeowners directly.

It would seem to adress the problems, without creating more, except that of government revenue through taxation would suffer. Taxing the rich won't work, many of them aren't quite as rich, all of a sudden.

It seems to me that a balance somewhere between the rates, the tax breaks and the bail-outs that the problem can be fixed, not cured, just fixed up a little bit better.

It seems that everything is askew.

I don't expect the politicians to be able to follow what is going on either.

It is clear that we need to get money into the malls without extending more credit to consumers. While a simplistic view is impossible, where does the kick-start come from?

If anyone can think of a better way than lowering the rate they pay on their fixed mortgage, or giving them money through tax breaks then here's your chance.

 

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