eli5: who or what is profiting from the MASSIVE interest rate rises in Australia? Is it the banks holding your mortgage? The Government?!.. basically, who is loving life right now?
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I don’t think anyone benefits from interest rate based monetary policy in this day and age.
There was some guy (John Keynes), who thought he new how to prevent another great depression. So in in the 1930’s he wrote a book about his ideas. Central to it all was using interest rates to stabilise inflation and unemployment. It was just another economic model and despite being controversial at the time, it gained acceptance.
And since then we have been drowning in economic stability… nah just kidding. Things like stagflation in the 1970’s showed his ideas didn’t really work. They they kinda worked just enough to stop capitalism falling over. The ideas lost traction with competing theories influencing economic thought, In the 80’s we tweaked Keynes’s ideas a little bit and said “that’l fix it”. It didn’t really work; but apparently it somehow fixed the GFC; dunno how they figure that.
Now we live in a world vastly fucking removed from the 80’s; but unfortunately grandpa’s still running the joint. So they still fiddle with interest rates, because that’s never gone wrong… except for that time, and that other time, and that other time…Maybe I’m a bit harsh. Back in the 80’s sure “one leaver” kinda worked; esp as most businesses and householders , were heavily effected buy interest rates. It was also about the most complex model you could work out using a slide rule.
But it’s 2020’s now and there are a lot of levers to throttle/manage an economy (GST, Tax rate, tariffs, even postal charges have huge effect on the direction of consumer spending). We should acknowledge 90 years of mathematical / computing advances since Keynes “saved Capitalism”. We can and should do better than primitive models that destroy lives (of families with mortgages) to sometimes obtain economic stability.
As far as the US goes, most banks are making less off mortgages right now. The vast majority of mortgages are sold off, usually to Fannie or Freddie or other gse and the banks make money off of origination and servicing. That activity is suppressed right now.
On the other hand, most US banks are currently making more off of new loans they hold on their books. However, they are paying more for their deposits, and a lot more if they operate heavily with “fed funds” which is the rate you hear about in the news. There are some commercial banks in the US that have a low deposit base and simply use overnight borrowing from the fed to fund their loans, and this is a lot expensive now.
Anyway, the higher “net interest margin” is balanced against lower demand and potential higher charge offs from reduced economic activity.
Just on a side note, this is not an exclusive Australian phenomenon.
At all. https://www.google.com/search?q=interest+rates+worldwide+2023&tbm=isch&ved=2ahUKEwjPiv34qqT9AhUABrkGHUC8B1wQ2-cCegQIABAC&oq=interest+rates+worldwide+2023&gs_lcp=ChJtb2JpbGUtZ3dzLXdpei1pbWcQAzoECCMQJzoFCAAQogRQxghYniRg1ytoAXAAeACAAZICiAHHCZIBBTAuNS4ymAEAoAEBwAEB&sclient=mobile-gws-wiz-img&ei=B4fzY4_rEoCM5OUPwPie4AU&bih=736&biw=393&client=ms-android-xiaomi-rvo3&prmd=nisv#imgrc=zZYc7MNvYkVxUM
As far as the US goes, most banks are making less off mortgages right now. The vast majority of mortgages are sold off, usually to Fannie or Freddie or other gse and the banks make money off of origination and servicing. That activity is suppressed right now.
On the other hand, most US banks are currently making more off of new loans they hold on their books. However, they are paying more for their deposits, and a lot more if they operate heavily with “fed funds” which is the rate you hear about in the news. There are some commercial banks in the US that have a low deposit base and simply use overnight borrowing from the fed to fund their loans, and this is a lot expensive now.
Anyway, the higher “net interest margin” is balanced against lower demand and potential higher charge offs from reduced economic activity.
As far as the US goes, most banks are making less off mortgages right now. The vast majority of mortgages are sold off, usually to Fannie or Freddie or other gse and the banks make money off of origination and servicing. That activity is suppressed right now.
On the other hand, most US banks are currently making more off of new loans they hold on their books. However, they are paying more for their deposits, and a lot more if they operate heavily with “fed funds” which is the rate you hear about in the news. There are some commercial banks in the US that have a low deposit base and simply use overnight borrowing from the fed to fund their loans, and this is a lot expensive now.
Anyway, the higher “net interest margin” is balanced against lower demand and potential higher charge offs from reduced economic activity.
Just on a side note, this is not an exclusive Australian phenomenon.
At all. https://www.google.com/search?q=interest+rates+worldwide+2023&tbm=isch&ved=2ahUKEwjPiv34qqT9AhUABrkGHUC8B1wQ2-cCegQIABAC&oq=interest+rates+worldwide+2023&gs_lcp=ChJtb2JpbGUtZ3dzLXdpei1pbWcQAzoECCMQJzoFCAAQogRQxghYniRg1ytoAXAAeACAAZICiAHHCZIBBTAuNS4ymAEAoAEBwAEB&sclient=mobile-gws-wiz-img&ei=B4fzY4_rEoCM5OUPwPie4AU&bih=736&biw=393&client=ms-android-xiaomi-rvo3&prmd=nisv#imgrc=zZYc7MNvYkVxUM
I don’t think anyone benefits from interest rate based monetary policy in this day and age.
There was some guy (John Keynes), who thought he new how to prevent another great depression. So in in the 1930’s he wrote a book about his ideas. Central to it all was using interest rates to stabilise inflation and unemployment. It was just another economic model and despite being controversial at the time, it gained acceptance.
And since then we have been drowning in economic stability… nah just kidding. Things like stagflation in the 1970’s showed his ideas didn’t really work. They they kinda worked just enough to stop capitalism falling over. The ideas lost traction with competing theories influencing economic thought, In the 80’s we tweaked Keynes’s ideas a little bit and said “that’l fix it”. It didn’t really work; but apparently it somehow fixed the GFC; dunno how they figure that.
Now we live in a world vastly fucking removed from the 80’s; but unfortunately grandpa’s still running the joint. So they still fiddle with interest rates, because that’s never gone wrong… except for that time, and that other time, and that other time…Maybe I’m a bit harsh. Back in the 80’s sure “one leaver” kinda worked; esp as most businesses and householders , were heavily effected buy interest rates. It was also about the most complex model you could work out using a slide rule.
But it’s 2020’s now and there are a lot of levers to throttle/manage an economy (GST, Tax rate, tariffs, even postal charges have huge effect on the direction of consumer spending). We should acknowledge 90 years of mathematical / computing advances since Keynes “saved Capitalism”. We can and should do better than primitive models that destroy lives (of families with mortgages) to sometimes obtain economic stability.
I don’t think anyone benefits from interest rate based monetary policy in this day and age.
There was some guy (John Keynes), who thought he new how to prevent another great depression. So in in the 1930’s he wrote a book about his ideas. Central to it all was using interest rates to stabilise inflation and unemployment. It was just another economic model and despite being controversial at the time, it gained acceptance.
And since then we have been drowning in economic stability… nah just kidding. Things like stagflation in the 1970’s showed his ideas didn’t really work. They they kinda worked just enough to stop capitalism falling over. The ideas lost traction with competing theories influencing economic thought, In the 80’s we tweaked Keynes’s ideas a little bit and said “that’l fix it”. It didn’t really work; but apparently it somehow fixed the GFC; dunno how they figure that.
Now we live in a world vastly fucking removed from the 80’s; but unfortunately grandpa’s still running the joint. So they still fiddle with interest rates, because that’s never gone wrong… except for that time, and that other time, and that other time…Maybe I’m a bit harsh. Back in the 80’s sure “one leaver” kinda worked; esp as most businesses and householders , were heavily effected buy interest rates. It was also about the most complex model you could work out using a slide rule.
But it’s 2020’s now and there are a lot of levers to throttle/manage an economy (GST, Tax rate, tariffs, even postal charges have huge effect on the direction of consumer spending). We should acknowledge 90 years of mathematical / computing advances since Keynes “saved Capitalism”. We can and should do better than primitive models that destroy lives (of families with mortgages) to sometimes obtain economic stability.
It’s hard to find a group that directly benefits from high interest. Business in particular doesn’t like it. Low interest rates essentially “pump” the economy and it significantly increases investors tolerance for risk.
You also need to ask yourself “What is “high” interest and what is “low” interest? Frankly, the current base rate in Aus 3.1% (approx.), still lower than the 3.8% average from 1990 to 2023. There have been times, 1990 specifically, when it reached as high as 17%.
The reality is somewhere in the 3%-5% area is probably ideal. This leaves room for the government to increase and decrease the rate in response to economic conditions. When you hear “monetary policy” this is what they are talking about.
IMO (and many others) interest rates have been far too low for far too long. It helps create as many problems as it solves. I understand this makes things difficult for the average buyer, but that’s the point. It helps prevent really risky speculative behavior. For example, many believe the recent problems with the housing market (astronomical prices and purchases by foreign investors) are tied to the low rates.
It’s hard to find a group that directly benefits from high interest. Business in particular doesn’t like it. Low interest rates essentially “pump” the economy and it significantly increases investors tolerance for risk.
You also need to ask yourself “What is “high” interest and what is “low” interest? Frankly, the current base rate in Aus 3.1% (approx.), still lower than the 3.8% average from 1990 to 2023. There have been times, 1990 specifically, when it reached as high as 17%.
The reality is somewhere in the 3%-5% area is probably ideal. This leaves room for the government to increase and decrease the rate in response to economic conditions. When you hear “monetary policy” this is what they are talking about.
IMO (and many others) interest rates have been far too low for far too long. It helps create as many problems as it solves. I understand this makes things difficult for the average buyer, but that’s the point. It helps prevent really risky speculative behavior. For example, many believe the recent problems with the housing market (astronomical prices and purchases by foreign investors) are tied to the low rates.
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