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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: $10bn housing splurge one way to boost spending, inflation

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$10bn housing splurge one way to boost spending, inflation

The Australian 12:00am April 30, 2019

Adam Creighton


Japan, here we come. Not literally, but it’s increasingly clear the land of anime and sushi has reached our economic destiny — zero interest rates and massive central bank interference — first.

A little more than 20 years ago, when the euro was still a baby and Pokemon was on the drawing board, the Bank of Japan cut its official interest rate to zero to spur its economy. Where is that rate today? Negative 0.1 per cent, more or less zero, still. Since then, official interest rates in every developed country have trended towards zero. Australia’s has fallen from 4.75 per cent in 2011 to 1.5 per cent in 2016.

Despite repeatedly suggesting the next move would be up, the Reserve Bank of Australia is again under pressure to cut after it emerged prices grew by only 1.3 per cent across the year to last month. The chances of two cuts by the end of the year have jumped to 96 per cent.

With meagre wage growth, you might think low inflation would be a welcome boost to purchasing power for grumbling workers. Wrong. During the past 20 years, central banks have created an artificial framework whereby their credibility depends on the price level increasing at a steady pace every year, in our case between 2 and 3 per cent, come hell or high water.

The whole thing is predicated on a tight link between the overnight interest rate that central banks control and inflation. Recent experience should have eviscerated that idea: inflation and interest rates, from Europe and the US to Japan and Australia, have moved in the same direction — down. It’s the opposite of what’s supposed to happen.

Far from going back to the drawing board, the world’s major central banks doubled down, creating more than $US15 trillion ($21.2 trillion) in new money to buy up stocks and bonds to put even more downward pressure on rates. Still, inflation was 0.6 per cent in the US across the year.

For some, it has been a bit farcical to think central banks can control inflation when the money supply is in the hands of private banks, which have the power to create credit and deposits that are as good as cash. Not for central banks, though, whose models don’t include banks.

Lower interest rates, however, have ratcheted up house and share prices, enriching the already wealthy. Indeed, a further half a percentage point cut in the cash rate would lift house prices by about 15 per cent within four years, according to analysis by two RBA economists released earlier this year. Changing negative gearing wouldn’t have become Labor Party policy without the RBA.

Even the RBA’s own “monetary policy for dummies”, included in its most recent bulletin, makes a weak case for a cut in the cash rate. The transmission of changes is “complex and there is a large degree of uncertainty about the timing and size of the impact on the economy”. It takes “between one and two years for monetary policy to have its maximum effect”, and even then you need a microscope. A one percentage point cut in interest rates would lift inflation by “somewhat less than 0.25 percentage points per annum over two to three years”. according to 2015 RBA research.

Martin Place is kidding itself if it thinks a fresh trim of an obscure short-term interest rate will do anything more than provide a sugar hit to home lending.

Yet central bankers are only human. We’ve become mired in a zero-rate environment for a simple reason. Central banks have been cutting interest rates whenever there’s a hiccup in growth or a lull in inflation.

But they don’t symmetrically increase rates when credit growth is going gangbusters, as it was leading up to the financial crisis and since. The politics of tightening — grumpy borrowers, corporate and household, and politicians — is difficult. Moreover, as interest rates have fallen, governments and households have been able to take on more debt, making it ever harder to reverse the cuts. Global debt is now far higher than it was before the financial crisis.

The US Federal Reserve’s humiliating attempt to “normalise” rates ground to a halt barely 18 months after it began, derailed by fears higher rates would hurt investors, and, as the President made clear, Donald Trump’s re-election chances. Something called patience is the Fed’s new guiding principle, whatever that means.

The RBA didn’t even get the chance to go through the motions of attempting to lift rates. The slated cut this year almost guarantees another one. And quantitative easing, which Japan also pioneered in the early 2000s, is then only around the corner.

What does our future hold? At least Japan’s prosperity and social cohesion suggest a prolonged period of zero interest rates won’t necessarily ruin us. It will make a mockery, if it hasn’t already, of a free market in financial assets and much else.

The Bank of Japan has accumulated about $US5 trillion worth of stock and bonds in its futile quest to lift inflation. It owns three-quarters of Japanese exchange-traded funds. Within two years, the BOJ is set to become the largest single owner of Japanese stocks. The Fed, with only $US3.6 trillion in bonds and mortgages on its books, hasn’t started buying shares yet and the Bank of England, naturally with its own QE program, has started buying corporate bonds.

Perhaps an Australian QE program could include purchase of homes, say $10 billion worth every year. By keeping them off the market, rents would be higher, helping to lift inflation. And house prices would be higher too, creating a wealth effect that stimulates spending and hopefully feeds into inflation too.

Central banks collaborate regularly, ensuring a herd mentality. Even if many doubt the efficacy of further cuts, no one wants to stick their neck out and try something different. The safe option is to bang one’s head against a wall again and hope for a different outcome.


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