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Passing on interest rate cuts


Bruce
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. Depends on whether WE live in a  state where the government can actually TELL businesses what to charge for a product (like they keep doing).. Don't forget this is supposed to be a free market economy based, SMALL government. The Reserve Bank  is also supposed to operate INDEPENDENTLY free of gov't interference.  These are DICK TATORS  representing BIG money, masquerading as  a democratic government. FAKE and sell public assetts to their sponsors . Nev

 

 

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Well they TELL  me ( with menaces ) how much tax to pay.  And for this money, I get their services. So they charge me for their product.

 

I couldn't believe it when they ( the government ) indemnified the banks FOR NOTHING when it looked like there might be a run on them.

 

What an opportunity it was to make a deal with them for certain behavior in the future. This is called a contract. Permitted even with small capitalist governments.

 

 

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The continued rate cuts have done nothing for the economy as far as I can see. They have contributed to rising house prices, which have not benefited the potential first home buyer. They have kept the Aussie dollar low, which has been the aim of the Reserve Bank and also the Government. Ask your local member what the advantage of a low Aussie dollar is, because I have no idea, but then I am not a mine owner.

 

The continuous rate cuts seem to me to be akin to the bloke who has run his car out of fuel, but insists it will go if he keeps pressing the starter.

 

 

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Most of the profit from that  goes to the  overseas owners, who rarely pay any tax here on their profits and it inflates all import prices, and we now produce practically NOTHING here so what's GOOD about all that? Our economy has is performing very poorly as all economics experts agree. How much longer for the AAA ratings ( that LABOR got in the GFC). to disappear? WE have dropped back on all the important measures compared to comparable countries. Nothing to be proud of and certainly NOT Labor's fault. We have been sold a PUP by the Papers over a long period. No doubt they will own up to their deception..(LOL) Nev

 

 

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Not only mining. have you noticed the number of trucks carrying timber logs.

 

I believe that 250000tonnes of timber has been exported from Qld in the last year. The Qld government shut down the forestry and gave Hancocks, a Canadian company  a lease on the softwood part of State Forests. They can cut it down but have to replant. I am told by those who should know that there has been no replanting. We are going to be left with vast areas of stripped softwood forests when Hancocks walks away.

 

 

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NSW has a silly , "State Forestry land cannot be sold but must be GIVEN to NATIONAL PARKS,"

 

They (National Parks)  CAN sell it to their advantage.

 

State Forest, has to be self sustaining, National Parks is Government funded.

 

spacesailor

 

Please PLEASE prove me wrong

 

 

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Mike, AUD$37.875 Billion sounds like a lot of income from mining, but it should be viewed in relation to the other sources.

 

A quick search (Wikipedia) gives perspective for 2016 ( probably not much has changed since then)....

 

_____________________________________

 

 

 

 

 

GDP by sector

 

 

  • Services: 61.1%
     
  • Construction: 8.1%
     
  • Mining: 6.9%
     
  • Manufacturing: 6.0%
     
  • Agriculture: 2.2% (2016)[7
     

 

________________________________

 

Mind you, although "Manufacturing" rates almost as high as mining, I can't think what we still manufacture in Australia!

 

 

 

 

 

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Queensland gave the native forest land to National Parks and it has steadily deteriorated since then. There are places I used to walk in the State Forests that I cannot get through now due to the Lantana.

 

They got rid of the cattle, who used to nip off the small early growth of lantana. One area of a few acres used to be green meadow and a couple of years ago the Sunshine Coast bushwalkers cut a path through the lantana, about 200m long and you could crouch a bit and walk through it.

 

 

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  • 2 weeks later...

CEO of the Australian Banking Association, Anna Bligh, says that banks have to think of all their customers, not just home borrowers. She says the bank has to pay interest to retirees who rely on that income to live on. Reductions in interest erodes their income.

 

 

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As you know, I work in banking.... Mainly investment, but I have done some retail and commercial...

 

The banks couldn't give a rat's khyber pass about customers - borrowers or savers (aka unsecured lenders)...  The reality, with low interest rates, they make lower profits as the net margin is lower in absolute terms.. There is an old bankers 3-3-3 rule... "Borrow at three percent, led with a 3 percent margin, at the golf course at 3pm..."

 

In this, the margin is 100%.. So, Say I borrow $100 from you at 3% for a year from a depositor... I lend it at 6% to someone else... My margin is $3.

 

Now, if interest rates go down to 1.5%.. (I intink in the UK they are currently .75% or thereabouts).. If I charge a 100% margin, I am charging borrowers 3%.. I am paying $1.50 and earning $1.50 margin - on the same capital. Yuk.. I don't like that one bit..

 

Of course, it is more complicated that as a bank uses short term deposits to fund long term debt (called financial intermediation).. They have to hold capital (which is not necessarily cash) to cover expected and a derived unexpected loss. But, banks like deposits ad they call them "cheap and sticky".. They are cheap to buy (we are getting well below wholesale rates for our deposits as a collective) and we tend to leave our deposits there (yes, some people don't,. but in Aus, you sting them, anyway).

 

But the gist is, your margin in absolute terms is a lot lower in low interest times than it is in high interest times.. and that is why the banks hate it and that is why the banks (in Australia) don't pass it on.

 

The banks in most develped worlds do pass it on. Yes, it costs the savers (rarely will you get interest with a current account, and term deposits will nto keep up with inflation).

 

I know there have been a few new entrants into the Aussie banking market (HSBC, ING, etc), but from what I can tell, it is still the big 4 that are benefiting from client interia - in other words laxziness to move. This means, you effectively have a cartel. The US also have a cartel because of their backward laws that protect regional banks. There are a few second tier banks, and they do OK off the coattails of the bigger banks strategic cartel coattails. There are a few cheap mortgage places (can't remember the name of it, but it advertises on TripleM that if your home loan rate doesn't start with a 2, then you aren't with them.. be careful though.. the 2 could be followed by another number before the decimal place ;-))

 

The reality is Australia simply doesn't have the competition - so much so, that in my second last institution, they specialised at riaisng Aussie debt in the UK - even with the FX risk, large AA Aussie institutions were prepared to pay to take that risk away and take the debt markets here as, all in, it is cheaper than raising debt in Australia.

 

Anyway, now you know the real reason Aussie banks don't want to drop their rates. Ol' josh is correct to order an inquiry...

 

This article is complete BS... Yes.. depositors do suffer with low interest rates - but if a single bank was left standing while all the other dropped their rates, they would be broke fairly quickly - they would be paying depositors top dollar while those same depositors would have their home loans wth other banks at a lower rate... For the deposits that the other banks are missing out on - well, there is enough wholesale money to pick up the slack and since they can't get retail rates, they will happily fund home loans....

 

https://www.theage.com.au/politics/federal/bank-inquiry-ignores-depositors-as-westpac-warns-rates-could-go-higher-20191014-p530ie.html

 

 

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Back in the day, when Baby Boomers were simply "the kids in your street", the Commonwealth Bank was a highly respected member of the community. Established by the Commonwealth Bank Act 1911, introduced by the Andrew Fisher Labor Government,  with effect on 22 December 1911, the bank was  the first in Australia to receive a federal government guarantee. So it was a bank for the people. It remained that way until between 1991 and 1996 the Keating Labor Government fully privatised it. Having been released from Public Service control, the bank became the voracious financial predator it is today.

 

https://en.wikipedia.org/wiki/Commonwealth_Bank

 

 

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Outside Australia, it is but a whimpering pussycat... We take Macquarie and NAB seriously; ANZ has a bit of a presence.. but CBA - pfft.. We don't even take their business these days... Having said that, got news today that the part of the bank I an contracted to may be shutting down - so it will be a) back to risk (yuk!), b) back to nuclear (yes!) or c) to the dole queue ?

 

 

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