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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: Low interest rates exacerbate real risks

Posted by on in Reserve Bank of Australia
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Low interest rates exacerbate real risks

Australian Financial Review May 18 2016 11:15 AM

Christopher Joye


Don't buy into the Reserve Bank of Australia's ever-cheaper-money-makes-us-better-off bullshit. Taking on more record debt at the puniest interest rates in human history to artificially boost economic activity to some theoretically acceptable growth rate – and the existence of zombie businesses that would never survive with a normal cost of capital – is plainly stupid.

The same logic applies to mindlessly chasing absolute yields and buying horrifically overvalued investments just because the RBA wants to ignite "animal spirits". The risk-averse would be better served making peace with meagre returns and avoiding catastrophic capital losses when fundamentals wrest control of asset prices back from policymakers who think they know better.

To recap, on May 3 the RBA decided to slash the cash rate to a new all-time nadir of 1.75 per cent, even though growth has been trundling along at a slightly above-trend pace, the jobless rate has shrunk from 6.4 per cent to a historically low 5.7 per cent, and house prices continue to surge at an unsustainably strong double-digit annualised pace.

Outgoing RBA governor Glenn Stevens felt compelled to pull his itchy trigger, and signal yet more cuts are to come, because core inflation in Australia fell a bit below the RBA's 2 per cent to 3 per cent target band over the 12 months to March 2016.

You can bet your right eye-tooth that had underlying inflation printed at the upper end of the band, which it did between December 2013 and June 2014, the central bank would have made all sorts of excuses as to why it should "look through" this so as not to have to – heaven forbid – contemplate normalising the price of money.

The news for prudent savers and retirees, who are being punished in the name of encouraging spendthrift borrowers to extend their debt-buying binge, is devastating. The interest rate on Macquarie Bank's popular cash management account has plummeted to just 1.65 per cent. Betashares' similarly successful exchange-traded fund (ETF), which invests in cash deposits, is now returning only 2.28 per cent net of fees (but before brokerage).


The bottom line is that if you want to earn what was once regarded as a very ordinary – and with low probability of loss –return of, say, 5 per cent annually, you have no choice but to pour most of your hard-earned cash into investments that almost certainly don't suit your risk profile.

The cheapest borrowing rates since before the birth of Jesus have synthetically lifted the value of interest rate sensitive sectors such as property and shares, and the debt burden across the economy. Back in 1990, household debt was 70 per cent of disposable incomes. Today that figure has skyrocketed to 186 per cent and shows no signs of abating. 

Aussie house prices have jumped 32 per cent since January 2013 on the back of the RBA's easy-money policies. And after decelerating in late 2015 they have picked up momentum in 2016 with annualised capital gains north of 12 per cent over the three months to May 8.

This extraordinarily ebullient price action could be quite rational if you think that the RBA's "low-rates-for-long" meme is here to stay. But do you want to bet your life savings on the boffins in Martin Place, who failed to foresee the 1991 recession and the global financial crisis?

You can get a 4.7 per cent dividend yield on Australian equities or a 3 per cent to 4 per cent gross rental yield before transaction costs, fees and taxes on Sydney and Melbourne property. You might even capture more if you can bank some capital gains.

Yet punting all your savings on these investments could severely damage your retirement prospects if interest rates are one day forced to mean-revert back to observed trends since the advent of non-commodity-backed fiat money in the 1970s.

The alternative is to reject the RBA's guidance and accept that financial markets are more distorted than they have ever been during our lifetimes. Those that cannot afford to wear large losses would be better served making do with skinny cash returns that have the benefit of preserving capital while offering modest upside of, say, 1 per cent to 2 per cent above their cost of living.


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