RBA Rates Decision – October 2011

Anyone tired of hearing about the European debt crisis or the US economy yet?

Of course we all are, but as the saying goes ‘Money makes the world go around’, so these global events are unfortunately part of Australia and ultimately a part of our personal worlds.  And a clear reminder of this is the equity markets and how they have been so volatile of late.  This volatility affects us via pretty much most Australians’ superannuation balances.

Whilst Australia has been doing a great job of swimming against the current since the GFC, the big players in the game have been just treading water and staying afloat.  Why?  Well in my own view it’s because it has become political across all countries.  You don’t have to know what’s happening in other countries for this point to be proven, but you see the Federal Liberal Party almost daily trying to score political advantage in discrediting the Labor Party on their ability to manage the economy, all in an effort to win power again.

It’s no different in Greece, Italy, France, Germany, the US, so what you have are governments who really know what has to be done, but they don’t want to do it because its unpopular with the people of their nations and it’s potentially political suicide.

What’s going to be interesting is how much more ‘treading water’ they can do and how big the problem of debt will become before they drown.  Unfortunately tough decisions and action are going to have to be taken to resolve this mess.  I.e. pay off or significantly pay down debt to more manageable levels, otherwise the problem will manifest itself into something that will take a long time to recover from and will have implications for us all, even if we are somewhat insulated here in Australia.

The RBA’s decision to leave rates on hold again this month reflects their more focused view on the global situation than our own, but it currently reflects their position that we are still nicely placed in the overall scheme of things.  There is less and less likelihood of a rate rise in the near term due to this global uncertainty and it is more likely that a rate cut would be the next move if world markets continue to ease.  One thing is for sure; it’s a bumpy ride for now and we definitely need politicians across the world that put ‘country’ before their own political interests, as it was previous government spending in these countries that has led to this mess.

 

(Those people reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decision about financial matters without seeking further clarification and understanding of your own personal circumstances.  This article is not advice you should rely upon.  I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)