Australia Is Facing A Deep Recession & Negative Interest Rates

Australia Is Facing A Deep Recession & Negative Interest Rates

holy smokes everyone it looks like australia is going to be heading for the first time into negative interest rate territory and also the recession that we just had just a few months ago it looks like we are going to be entering into another recession or have we really got out of the recession that we just had last year in this video i’m going to be going over the two factors that will be contributing to australia falling into a recession again and i’ll also be going over the factors that are going to lead us into negative interest rates and then i’ll tell us what we should be doing about it okay everybody let’s not waste any time let’s get straight into it so have a look at this everyone ashrae is heading for negative interest rates as iron ore and the housing market slump now what you have to know is what got us out of the gsc and what got us out of the recession or the little dip our recession i guess you could say in 2020 the short and sharp recession which is a bit of a tongue twister was booming commodity prices especially iron ore iron ore when completely parabolic and for every ten dollars uh iron ore goes up per ton that’s about another 10 billion dollars for the australian economy and what also happened is they cut interest rates very very low the average mortgage rate went from around three to three and a half percent and you could get fixed interest rates below two percent for every one percent drop in interest rates people’s borrowing capacity increases anywhere between 10 and 15 percent so of course people don’t borrow what they can afford they borrow what the bank tells them they can borrow but all of a sudden their purchasing power for homes went up because of lower interest rates they could go out there at auctions uh they could go and they you know they might get a bit of fomo or they might you know not really like the guy they’re bidding against and so they had more room to bid up house prices but now these two cash cows for the australian economy is coming to an end let’s have a deeper look so australia’s economy is a simple machine that runs on two motors the two engines are commodities and household debt we might call these miners and banks or iron ore and house prices and i completely agree what we’ve been talking about on this channel is australia’s economy is not very complex at all we’re doing pretty much what they’ve been doing for hundreds of years building houses and digging holes the machine is fueled by commodity income derived offshore this is then leveraged up in global markets via bank borrowing the debt is channeled into rising house prices that drive up consumption so this is the wealth effect and this is something i think is a big scam here in australia they say look we gotta pump up house prices so everyone’s richer and then they’ll turn their house into a big credit card what you have to know is this is really a wealth effect full of politicians and those that have for example three or four plus investment properties for example i’ve just built a house my house has gone up recently well i could refinance and take out that equity but then that means my mortgage repayments will go up and that’s more of a burden on me also my council rates go up which is great news for the council and if i sell it and if someone buys it they’re now paying more than what i paid for it that’s more stamp duty for the state government and also with the wealthfx scam where if i sell my house well i’m still just getting one house because all the other houses around me have gone up at the same rate so for the average person it doesn’t really make them better off it just puts them in more and more debt and it really owner benefits those that have multiple properties at least that’s how it used to work since the pandemic began the machine has instead leveraged commodity income by a bank borrowing from the reserve bank of australia so again with the rba what they did in 2020 to get us out of that recession and to send house prices to the moon and the stock market was they created a term funding facility where they offered credit to the banks at 0.1 percent that’s right 0.1 and then the banks take that and then they lend you money at 3 and this has caused uh you know commonwealth banks profit margins to increase by 20 percent so again they say we’re all in this together this has really benefited the banks and for the rich to own lots of assets so like a twin engine aircraft the australian economy can soar when both of its engines roar in unison it can also hold its altitude on only one engine like what happened in the gec period when mining boomed and house prices fell or the reverse during the mining bust of 2015 when house prices went parabolic but when both engines fail a crash is imminent and this is what’s happening right now everyone so the first jet to flame out is households so the lock down to hammer confidence and spending business is slowing fast and future investment plans are being shelved and also companies you know imagine if you got for example a cafe a restaurant a bar why would you be investing anymore when you don’t know if you could just be shut down the next week and so we’ll have a look at this shot everyone this is trading profitability and employment the gray line is trading black line profitability and a red line as employment as you can see we had a v-shape recovery out of the 2020 recession but is now once again and it’s looking like we’ll be entering into maybe a double shaped recovery or maybe an abc123 shape recovery who knows maybe every letter of the alphabet so the second jet to flame out is huge commodity price gains so china has launched out of its lockdowns with huge commodity demand but that is now slowing very fast iron ore is tumbling and coal is next because look at this everyone china has slashed steel exports to australia by 50 percent to wean itself off the nation’s iron ore industry and what you have to know is china’s what got us out of the gsc we are one of the biggest exporters to china we make a lot of money by exporting iron ore and coal to china and if this gets shut down especially you know if the trade wars intensify that’s just going to be a double whammy to the australian economy so it says here it’s been the only thing keeping australia afloat and now china has moved to gut the iron ore market beijing boasts it has slashed steel exports to australia by more than 50 percent and it insists efforts to wean itself off from australian iron ore and are only just beginning it quotes an unspecified chinese steel exporter as saying the trend is set to further accelerate so as australia’s reboots its economy demand for steel is set to further jump with a rollout of more housing and infrastructure construction that combined with dwindling imports from china will only widen the supply gap with no other country to fill it so what that simply means is in order for us to have an economic recovery we’ve got to build stuff but if china doesn’t give us the steel to build stuff or the things we need we won’t have those resources to get us out of this recession that’s staring us right in the face and we can look at this chart everybody we can see here in april um iron ore went from around eighty dollars a ton and has skyrocketed nearly um three hundred percent uh up to around two hundred and thirty dollars per ton but now it has collapsed to around 140 dollars per ton so you may not care really about you know the mining industry or whatever but this is what it leads to everybody listen to this as a two economic motor sputter unemployment will begin to rise wages will weaken and inflation will disappear but let’s talk a second about inflation and wages because this is something very important that we must know and unfortunately not many australians really pay attention to all of a sudden central bankers are saying inflation’s great you know they normally wanted two or three percent but now they’re saying oh we want more inflation it’s great why are they saying that they’re saying that because governments around the world are going bankrupt so they need to have high inflation so that way the price of everything goes up that means their tax revenues go up and that means the debt it gets devalued by inflation because look at this everyone australia’s inflation rate is 3.8 and they tell us it’s good because then your wage will go up and you’ll make more money that’s a complete lie look at this everyone this is australia’s wage index and as we can see around 2004 2005 a wage growth was around four percent and now look at this wage growth has fallen completely in the gutter and we’re now only getting around one and a half percent wage price growth when inflation is more than double that and that is why the standard of living in australia is declining rapidly and that’s why you’re having families that have gone from one income you know a father with five kids being able to support a family to now two people the mother and the father working with maybe just one or two children and they’re still struggling to get ahead it’s because of this inflation and wealth effect scam wages aren’t keeping up in with inflation and they’re definitely not keeping up with house price growth so what can our saviors our lords do to save us the peasants to get us out of this economic crisis that’s facing us first the government can spend more and they will but unlike 2020 and 2021 as mining profits bust not boom this time the tax they take will get smashed so they’ll want to be more conservative so again what got us out of the last recession with huge government spending with job keeper job seeker lots of stimulus for the businesses but they don’t have the luxury of that this time especially with their tax revenue declining with unemployment rate going up and also with mining profits going down that means a second throttle the rba will have to carry more of the load australia will need to have a lower currency to help offset the collapsing export income so the rba will force to increase its money printing and bond purchases at a matter of course so what that means is the rba is going to print more money they’re going to buy more bonds to lower the yield on the australian bonds to lower the oc dollar that means if you’re holding lots of cash in the aussie dollar you may want to get some hedges like gold not financial advice but just maybe something i would do because they are going to be trying to lower our currency and that’s something we’ve already seen it says the likelihood that the mining income will be shut off throughout 2020 so the rba will therefore need to rev its other engine the housing market well well well here we go again to boost the australian economy you know the rba and the government’s only got two tools really mining and housing so if commodity prices continue to fall you better believe they’re going to pump the housing market again so either the rba will have to cut its cash rate negative or have to print more money for the banks offered up on a negative yield so what this means is hopefully we won’t have negative interest rates at least for now uh in our bank accounts but what the rba could do is like the term funding facility offering uh credit to banks at 0.1 percent they could offer money to banks at a negative interest rate and then hopefully the banks will pass it on to customers but i do expect they will hold some of those uh rate cuts for themselves to increase their profitability just like what they did in 2020. so the european central bank has been doing both of these things for many years the european cash rate is 0.5 percent and it provides money to the banks to lend as low as 0.1 percent the rba says it will never do these things but it always says that and that’s of course they said zero percent interest rates not likely qe in australia not likely well they went a step further than the us with qe they went yield curve control where they kept buying bonds to keep the yields uh on the bonds even lower at 0.1 or 0.2 percent so i’d bet my last dollar that the rba will go negative if we enter into a double d recession because when things do hit the fan when things looking very grim people are going to be calling on the rba to do something so everyone what this means for you and me this means we’re not going to have the mining boom to get us out of this recession the housing market has been roaring hot but it is look like it’s going to slow with falling auctions rates with falling affordability with more and more people choosing to build a home because of all the government grants that’s adding supply we’ve got ultra low migration so again to simple supply our demand economics that should hopefully cool down the housing market but it all depends how the government responds here do they have one last kick in the can down the road will they all of a sudden you know give everyone fifty thousand dollars to go and buy a house uh to stimulate the economy because that’s the last tool they got how deep will the rba go if they go negative 0.25 i don’t think they’ll have much effect on the housing market but if they do go negative one percent and the economy isn’t in a deep deep recession then maybe house prices will continue to grow but there’s so many uncertainties right now it is very hard to call so everyone what we have to do is prepare for any scenario now by having hedges to inflation hedges against current debasement and also we need to become more financially resilient by paying off high interest debt by preparing for shortages that may come like having you know food storage your own power supply water supply and if the rba does go negative and the currency falls gold may be a good hedge against this and bitcoin might even boom as well price in the aussie dollar so everyone that’s just some of my thoughts and opinions what’s going on in the australian economy you let me know your thoughts down below now for all my loyal viewers and subscribers still watching you’re awesome if you haven’t already please tap that like and subscribe button i’ll keep you updated on the laser tap in the stock market housing market and global finance news if you’re bored i’ll put up some my other videos here i’ll see you all there
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Australia Is Facing A Deep Recession & Negative Interest Rates

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