The Reserve Bank of Australia's dramatic 1% interest rate cut has not worked according to Mr Mortgage , even though they were followed with a joint round of rate cuts around the World, because consumers have stopped spending, and this has not helped them to restart because credit card interest has not been lowered and now investments and superannuation plunges are melting away confidence and job security.
On the housing front there are now 800,000 house-holds suffering financial [mortgage] stress, and the 0.8% rate reduction passed on by the banks will help a little, but that will not encourage new home buyers into the property market, with job prospects on the slide.
The fact is Australians are fully loaded with debt, and more debt is not the answer for their problem.
Paying down debt would be easier if credit card debt were lowered the 1% that the cash rate was discounted, but banks Worldwide have liquidity problems, so milking the poor credit card holder is an easy way out of their problem.
The answer to the question what will happen to interest rates is easy. They will fall, so expect another 0.5% reduction before Christmas. This will only solve a part of the problem. The reason that the share markets are in free fall is loss in confidence, and the reason for that is the lack of liquidity in the banking sector. Even if people can repay a loan, they may not be able to get a new one because the banks haven't got the liquidity.
