The Ant and the GrasshopperEverything I was taught as a child must’ve been completely wrong. Save your pennies, they said. Look after those and the pounds will look after themselves, they promised. I was read Aesop’s The Ant and the Grasshopper and encouraged to knuckle down, work hard and plan for the future. I became an ant.
But maybe the grasshopper wasn’t so silly after all. Aesop never mentioned anything about negative interest rates and the availability of ridiculously cheap debt. Maybe living in the moment is the right thing to do – why work hard and save when you can have fun and borrow? Or, as French fabulist Jean-Jacques Boisard so eloquently put it: “Since we must all die in the end, hoarding is folly, enjoyment is wise.”
On August 2, the Reserve Bank of Australia again reduced the rate of borrowing, dropping it by 25 basis points to a record low of 1.5 per cent. Our nation is clearly on a crash course towards negative interest rates, a state already reached in a number of other countries in the developed world, including Switzerland, Sweden and Japan.
Central banks play with interest rates for a variety of reasons, but largely it’s to control inflation, manage a country’s currency and encourage economic growth. Most of the time, in Australia anyway, it’s largely ineffectual.
But none of you really give a flying financial fuck about that, do you? Nope, all you low-life pond scum give a shit about are house prices and mortgage repayments. And fair enough too, because this is where interest rates are felt most significantly by the average Joe.
With that in mind, the fact that one of the most noticeable effects of reduced interest rates here in the Eastern Suburbs has been to drive house prices even higher is not to be sneezed at. There is no doubt that rate reductions are a significant driver in this price growth.
What does this mean to the average punter? If you’re looking to buy, you could end up paying twice as much as what your neighbour paid for basically the same property just a few years ago. Sure, your repayments will be similar to what they faced when they first purchased their house, but if interest rates rise you will likely be in for a far more nasty shock. There is nothing good about paying back more than you can afford on a property that is hastily losing value, or so I have heard.
If you’ve got cash in the bank, you’re probably best to put it elsewhere, as the interest on your savings is only barely outdoing inflation at present. If interest rates go any lower, you could be paying for the bank to hold on to money for you that will inevitably purchase you less in the future.
So what does wise old Rupert suggest you do? Honestly, I’ve got about as much idea as the next bloke, which is bugger all. It’s really all just a massive punt.
That said, if Aesop’s winter does eventually arrive, I’ll be more than happy to sit in front of my wood fire and watch the grasshoppers of the world dance their last dance out in the deathly cold.