Experts predict interest rates will fall sharply

AUSTRALIAN interest rates are tipped to fall to the lowest level since the aftermath of the September 11, 2001, terror attacks as the central bank worries about a recession.

One Sydney academic is even forecasting an unprecedented zero per cent interest rate by 2010 on the premise that debt-laden consumers will close their wallets and threaten to push the economy into a deep economic contraction.

Macquarie Group interest rate strategist Rory Robertson said the Reserve Bank of Australia would cut the cash rate, now at 6 per cent, to 4.25 per cent over the next year.

This would be equal to where the cash rate was in December 2001, in the aftermath of the September 11 terrorist attacks in the U.S.

Wonder why did Oz just raised the IR not too long ago sometime in March! Anyhow, it seems they realise how bad the situation is now..duhh! With so many countries in recession now latest being Singapore, Japan and NZ, it would be hard to stop an oncoming train! By cutting the IR, we could probably see currency weakness. Who knows we might even see 1.80! Its not too far fetched! It's already 2.30 now! Unless you have kids studying in Oz and you have to pay school fees, the rates have been the lowest so far which is good. Wait for lower rates!

Property Market

With the IR going down and the new Gomen grant of AUD21k, some are able to buy their first home. PM Kevin Rudd announced the new AUD 10.4B rescue package to revive the economy and certainly the property sector. At a time like this when the world seems to be crashing down on you, history has shown where the money goes.

Following the World Stock market crash of October 1987, when the Dow Jones fell some 23%, and the Australian all ordinaries fell some 42%, WHY did the average Melbourne apartment rise by 37%, and the average Sydney apartment by 54% in the 24 months immediately following the crash?

(Source: Residex October 1987-October 1989)

To me, i don't think its as simple as that. Yeah the cause of the crash was quite similar as in the market was over bullish, companies would grow exponentially simply by constantly purchasing other companies. In leveraged buyouts, a company would raise massive amounts of capital by selling junk bonds to the public. Junk bonds are simply bonds that have a high risk of loss, so they pay a high interest rate. The money raised by selling junk bonds, would go towards the purchase of the desired company. IPOs were also becoming a commonplace driver of the markets. An IPO is when a company issues stock for the first time. “Microcomputers” were also a top growth industry. People started to view the personal computer as a revolutionary tool that will change our way of life, and create wonderful profit opportunities. And because of this greed, people were on margins! When the music stops, everybody panics and rushes out the door! Party was over in 8 weeks and lost all they had and more!

Similarly in 2008, CDO's were packaged together from good rated bonds with low risk, low return to crap rated high risk high return subprime loans which banks give to people who have bad credit rating. Heck, they even give you debit cards to spend together with the loans! When housing starts to plunder and people can't pay loans, the shit hits the fan and everybody loses in the stock market because of America's greed, It'll take more than 3 years to open up every CDO file and see what kinda rubbish was packaged in. Even banks do not know how much money they have to lend and that's the reason everything has frozen! No lending, no growth, businesses suffer, people stop spending and a great cycle of depression. I will have to start a business of selling safes to keep my money in because banks don't even guarantee what I have in there!!