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LVRG ScrapbookThursday, November 20, 2008:

Will we be doing this again in 2026?

Three years and five months after warning that “the next adjustment of Australian interest rates would more properly be down,” Bryan Kavanagh claims vindication in the Age, noting that the Reserve Bank raised interest rates by 1.75 percentage points in three years, then dropped them 2 percentage points in three months — or two months from meeting to meeting. (Since then, of course, the Reserve has cut rates by a whole percentage point in December and again in February.)

Meanwhile the Federal Government throws good money after bad by offering a $14,000 grant to first-time home buyers who buy existing homes. “It appears the Government, like some sort of tout, is trying to entrap young buyers into purchasing in a collapsing real estate market, where they could be left seriously exposed after the decline in prices,” says Kavanagh.

The article begins by noting the precedents and predicting that “We will no doubt learn shortly which building developer or bank will come to be seen as the harbinger of this particular financial collapse.” But unless we put an end to real-estate bubbles, banks will again start lending against overvalued collateral, and we'll be back in the same mess in about 2026.

[Posted February 16, 2009.]

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