Cash rate to 2% - What will this mean to you?

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DWolfe
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@dwolfe
Join Date: 2009
Post Count: 1,253
December 17, 2012 - 6:48 am
Hi guys and gals,
Saw this article – http://www.businessspectator.com.au/bs.nsf/Article/ANZ-economists-tip-cash-rate-cuts-to-2-33577?OpenDocument&src=pm&utm_source=exact&utm_medium=email&utm_content=149778&utm_campaign=pm&modapt=news
Thought it might be an interesting topic for over the holidays. (yeah, yeah what holidays, property is 24/7)
Official cash rate may drop to 2% by the end of 2013. What does this mean for us as investors? What could happen to the Australian economy, and what does it mean for property?
I'd like to hear the bears and bulls ideas, just for fun.
Cheers
D
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JT7
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@jt7
Join Date: 2010
Post Count: 286
December 17, 2012 - 8:52 am
If it's the case the RBA is forced to send the cash rate down to 2% it's a clear indication the economy is in trouble……
2% would be a historic low, would it not….and would appear be a disparate attempt to stimulate the economy.
Some extremely interesting debates and theories being discussed at the moment.
It's interesting to witness what's happening in the US….Another QE and the banks printing more and more paper currency. The value of the US$ is being devalued and perhaps they will enter hyperinflation…..
Nixon took the $US away from the gold standard in 1971 and created paper currency basically giving the banks a license to print money.
If the US is printing more paper money creating a fiat currency then everyone else is printing paper money…including us.
If the US entered hyperinflation and the $US devalued to zero one would assume tangible assets such as precious metals, hard and soft commodities and property would increase in value….
One things for sure DWolfe it's going to be an interesting ride….
Cheers Jack
jmsrachel
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@jmsrachel
Join Date: 2012
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December 17, 2012 - 9:32 am
What about the poor buggers who have money in a term deposit.
JT7
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@jt7
Join Date: 2010
Post Count: 286
December 17, 2012 - 10:39 am
jmsrachel wrote:
What about the poor buggers who have money in a term deposit.
Well………
In a high inflationary environment I wouldn't want to have money in term deposits that's for sure.
Hold enough cash for a little cash flow and for expenses/buffer then use PM's as a hedge against high inflation……
Freckle
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@freckle
Join Date: 2012
Post Count: 1,680
December 17, 2012 - 12:12 pm
If it hits 2%;
- you'll know your financial days are numbered
- central banks have lost control (not that they have control anyway they just think they do)
- GFC Armageddon style is imminent
- property values will be the least of your concerns
- if its bad here its 10 times worse overseas
Freckle
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December 17, 2012 - 12:24 pm
JT7 wrote:
If the US entered hyperinflation and the $US devalued to zero one would assume tangible assets such as precious metals, hard and soft commodities and property would increase in value….
Cheers Jack
You can't devalue to zero. In a hyperinflationary scenario the currency would simply depreciate against other currencies. Zimbabwe for example. Their solution was to adopt the US dollar as currency – something they couldn't print or manipulate.
Assets and commodities are valued in a number of ways. A currency collapse or high inflation doesn't improve their value in external currency terms. PM's may rise in US dollar terms but remain the same in AU dollar terms if the US currency is falling.
Those with US properties are likely to loose most if not all of their investment in coming years. It's a speculators market not an investment market.
JT7
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December 19, 2012 - 12:19 am
Freckle wrote:
JT7 wrote:
If the US entered hyperinflation and the $US devalued to zero one would assume tangible assets such as precious metals, hard and soft commodities and property would increase in value….
Cheers Jack
Assets and commodities are valued in a number of ways. A currency collapse or high inflation doesn't improve their value in external currency terms. PM's may rise in US dollar terms but remain the same in AU dollar terms if the US currency is falling.
This may be the case however, what will be evident in relation to PM's is simple supply and demand.
If and when financial systems erode, and I'd argue we are witnessing the erosion of both the US and European systems right now, the well informed including nations such as China, seen recently, will 'hedge' and 'protect' their wealth using Precious Metals such as gold and silver. As people run to PM's to protect their wealth global stocks will decrease. Just as in times past right throughout history. In relation to silver it's also an industrial metal so demand should be even greater considering the urbanisation of countries such as China and India. Silver's above ground supply is reportedly far less than gold.
For example gold was trading as low as circa US$710 an ounce in 2008. Silver circa US$9.50. November 2008 the US began it's Quantitive Easing program and printed vast amounts of currency. Today gold is US$1,676 and silver US$31.83.
Not bad gains in four years but the most important point is that you've hedged and protected your wealth.
TheFinanceShop
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December 19, 2012 - 2:59 am
I don't think it will 2% and if it does then Freckle has summed it up really well particularly the point 'property values will be the least of your concerns'. I actually think it will climb back up to close to 4% towards the end of 2013 and early 2015. Well im hoping anyway.
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