Car Insurance Comparison – Home, Life, Business & Travel Insurance Quotes

SWEDEN DOES THE UNTHINKABLE

Last week we saw an incredible event when Riksbank, the Central Bank of Sweden, cut the deposit rate to -0.25%. Usually unheard of and rarely utilised by central banks, a negative interest rate effectively charges savers money on their deposits in the bank.

Sweden is amidst its worst recession since the 1940’s, and it’s no surprise that drastic measures have been used in an attempt to revitalise the economy. The executive board of Riksbank has decided the country needs a more expansionary monetary policy; hence the decision to drop the deposit rates into negative territory.

A fall was also seen on lending rates, with these falling below 1% to just 0.75%. The rates are expected to remain constant until late next year, allowing plenty of time for the intended results to take effect. Official rates now sit at their lowest levels since interest rates were recorded, which was way back in 1907.

The economic downturn has hit Sweden hard. Exports are in important part of the Swedish economy and with the global financial crisis impacting their export market, export levels have dropped considerably. Automotive manufacturer Volvo is just one of the affected companies, scrambling to cut costs and slash job numbers.

To counter this, Riksbank has offered Sweden’s banks 100 billion kronors (AUD $16.2 billion) at fixed rates, in an attempt to reverse the economic situation. What this essentially means is that the banks are free to lend as much money as they want, but shouldn’t put any of that back into the central bank as deposits.

PUNISHING SAVERS

Negative interest rates are a slap in the face of savers. The global financial crisis was caused by lack of saving, which makes it odd that Riksbank has decided to further punish savers and remove any incentive for them to save instead of spend. The lack of incentive is a deliberate tactic, as they believe that consumer spending will stimulate an economic recovery.

This line of thinking is in stark contrast to the reality of the situation. It was overspending and escalating levels of consumer debt which was the cause of over-inflated prices for assets and commodities. The banks kept lending under the false assumption that asset prices would continue to rise, and when the prices went the other way, the global financial crisis was here.

It is clear that the problems behind the current economic situation in Sweden have been fundamentally misdiagnosed. Not only have the wrong group been punished with this move, but the borrowers and speculators that are the true cause of the crash have been rewarded with lower interest rates and the ability to further ruin the economy.

SWEDISH PIONEERS

The four minute mile was for so many years the unpenetratable barrier. But once it was crossed, a flood of other runners conquered the landmark time in quick succession. We may see a similar effect with the negative interest rate barrier. Sweden has crossed the line and other countries are considering following suit.

No other country seems to be more ready to take the step into negative interest territory than Japan. The recommendation has been floating around amongst Japan’s economists, as the country attempts to battle with an aging population and a potential decade long fight with deflation.

Other extreme ideas have been mooted, including the introduction of a tax on physical currency, as Japan faces the reality that an interest rate of 0% has been deemed too high by economists. They propose a drastic cut in rates in order to combat spiralling deflation, with economists calculating the necessary rate at -4%.

There has even been speculation the Federal Reserve in the US and the Bank of England could also introduce negative interest rates in their respective countries. Undoubtedly a number of other countries will mull over this proposition and potentially follow the lead of Sweden’s central bank. Although, they are more likely to wait to see what the immediate effects are upon the Swedish economy.

Even though this is the first time negative interest rates have been used as a remedy to repair an underperforming economy, it is not the first time they have been introduced. Switzerland also moved interest rates into the negatives during the financial panic of the late 80’s. People were worried about the financial stability of a number of currencies and rushed to the Swiss Franc, so they modified the rates to effectively charge a premium for the privilege of currency safety.

JUST WHAT IS THE POINT?

On the surface, negative interest rates appear like a ridiculous proposition. But if so many countries are considering the idea, there must be a purpose behind the reasoning. Well, the main function is to battle deflation. Lack of saving and increases in lending lead to higher spending levels. The spending creates an increase in demand and this naturally inflates prices, giving the governments the results they desire.

Unfortunately, the price inflation will only be temporary. Markets will always correct themselves naturally and when government intervention delays the natural market corrections, it only compounds the effect until it occurs at a later stage. As with most governments, the policies they implement are designed to shift the problems into the future and let someone else take the responsibility and blame when it occurs.

When you think deeply about the situation you realise that the same men who set the economic policies which led us all into this mess in the first place, have been given the job of getting us out. Policies like negative interest rates only compound the problems and highlight the reality that the top economists don’t have a clue what they are doing.

HEAVY CRITICISM

The move to lower interest rates into the negatives has drawn heavy criticism from a number of sources. Some say the decision is more to do with pleasing the political party donators and allowing their businesses to flourish; while others see it as an attempt to prop up property prices owned by the elite and give them enough time to sell their assets before a monumental collapse occurs.

Many Swedish residents have expressed outrage with the decision. They accuse Riksbank of practically forcing them to take on debt and are in dismay as their kronors become more worthless each day. In late October, 1 euro would buy 9.5 kronors. In the past 8 months, the rate has depreciated and now sits at over 11, representing a drop in buying power of around 11%.

Whatever the underlying reasons behind the decision are, Sweden faces an interesting road ahead. The international community eagerly awaits the economic outcome of the decision and only time will tell what the true effect on the economy will be. One thing is for certain – this is one of the true occasions when storing money under the mattress makes perfect sense.

The economic downturn has resulted in Australians shunning new credit. This is a stunning turnaround from the carefree attitudes that plagued the consumer market prior to the downturn.

Australia had developed a ‘credit junkie’ attitude in the years preceding the global financial crisis, and this was the main factor behind the skyrocketing interest rates experienced by Australian consumers.

Ignoring numerous warnings by the Reserve Bank of Australia (RBA), the public continued to increase their personal debt levels. In an attempt to reverse the ballooning credit consumption, the RBA made true on their promises and increased the rates to levels unseen for more than a decade.

Facing public backlash over rising interest rates and his broken promises to keep them low, Prime Minister John Howard shifted the blame entirely onto the RBA. But the RBA was simply following the guidelines in its ‘charter’, which state three main aims behind their decisions:

(a) the stability of the currency of Australia;
(b) the goal of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia.

The interest rate rises were primarily based on fulfilling point c in the charter, by attempting to curb consumer credit spending and assist in the long term economic prosperity of the Australian public.

Even Blind Freddy could see that personal debt levels were unmanageable and that the welfare of the majority of Australians was under threat. The interest rate rises were rightfully implemented, but unfortunately didn’t have the desired effect that the RBA was seeking.

Consumers continued to splurge on credit. Lack of funds was not an issue, as credit cards could have their limits raised, personal loans could be taken out, or if those options failed they just upgraded the mortgage. In short, the banks played their part in creating the mess, by not falling in line with the intentions behind the RBA’s interest rate rises.

What the RBA couldn’t achieve, the global financial crisis could. Ballooning financial burdens were not enough to sway consumers into cutting down on their spending. Instead, a massive media fear campaign that the end of the world had arrived was the tonic needed to make consumers withdraw into their shells.

As the crisis arrived, consumer spending plummeted. The rate of decline was so dramatic that the Federal Government introduced its stimulus packages, in order to revitalise the economy by increasing consumer spending.

The RBA also jumped in on the recovery act, slashing interest rates like never before seen. The high rate levels came tumbling down at a rapid pace and interest rates now sit at the lowest levels since 1968.

Amazingly, the aim of reducing consumer spending could not be achieved by raising interest rates, but instead has come about after a massive reduction in interest rates. This has proven that the public mindset is a more powerful determining factor behind their decisions, rather than the prevailing interest rate conditions.

The government and RBA should view this result as a history lesson. In the future, if a situation presents itself where it is beneficial to reduce consumer spending, a propaganda campaign may indeed be more effective in achieving the results they desire.

In each of the last three months, we have seen a modest 0.1% increase in credit. While if we view the yearly figures, the credit growth last month was 68% lower than at the same period last year. Business credit has fallen even more over the last year, with this years growth an astounding 82% lower.

Government measures are the only reason why the latest credit figures show an increase in consumer credit. Consumers and businesses are avoiding entering into credit arrangements, with the figures only being propped up by the First Homeowners Grants.

Historically low interest rates are proving an attractive incentive to the first homebuyers, who are finding the housing market irresistible at present. The high value of property prices obviously increases the amount of credit lent by the banks, which is potentially masking the true decline in overall credit provided in the market.

Australia’s consistent immigration intake and population growth is another factor which is contributing to the skewing of credit data. The reality of the situation may in fact be far different to the version we are being presented with.

Not that a decline in credit is a bad thing. On the contrary, it is highly advantageous to the Australian public. The only potential problem could be the slowing of economic growth, but as long as the economy remains in reasonable shape, declining credit levels will provide a massive boost to Australia’s long term future. Money being spent on goods and services rather than interest payments ensures a stable future for all.

REBUILDING THE NATION

When Kevin Rudd announced a $42 billion dollar ‘nation building’ plan, most Australians believed that it was a good idea. There were a few negative opinions and even a court challenge on the legality of the economic stimulus plan, but overall the Australian public approved of the proposal.

Their consent may have been linked to the fact that a large portion of the money was devoted to providing a one off cash bonus of $950, to the majority of the tax-paying public. Blinded by the glitter of money and the pleasure of spending it, most Australians were fuelled by greed as they eagerly anticipated getting their hands on the bonus, rather than sitting back and thinking of the long-term implications of the ‘nation building’ plan.

Most economists were highly critical of the stimulus package, reminding the Prime Minister that economic injections created from debt should only be used to build infrastructure, which will recoup the investment in tax at a later date. Cash injections have no lasting value and can only be recouped through increased taxes.

The economists’ warnings have fallen on deaf ears, as Kevin Rudd was seemingly dead set against listening them. Instead, he preferred to follow the lead of his international buddies and introduce a bailout package, knowing the detrimental economic effect it would have in the future.

WHERE DID THE MONEY GO?

Now that the inevitable has occurred, we will start to get a clear picture of the effect that the $950 bonus has had on the Australian economy. But to do that, there needs to be clear data showing exactly where the bonus has been spent. Will the economists’ predictions of the money being blown on alcohol, tobacco, pokies and plasma TVs eventuate?

The data detailing the areas where the $950 bonus was spent is still being tabulated. But we can gain a reasonable estimate of what the data might show by viewing pre-payment questionnaires asking how individuals will spend their bonuses. Catching up on mortgage payments was the only sensible common response, with other high priorities being new clothes, car parts and holidaying.

In fact, overseas holidays were a major favourite intention for the population not held back by children, with many people planning to leave as soon as the money hits their accounts. Regular Australian favourite locations such as Bali and Thailand are two of the economies that Kevin Rudd can expect to see his cash bonus stimulating.

Similarly, the Christmas bonus payments showed damning statistics. Poker machine revenue saw a dramatic spike in the pre-christmas period, as pensioners preferred throwing coins into a machine, rather than buy their grandchildren Christmas presents. The bonuses were paid on Thursday 11^th December, and the amazing scenes seen at Victorian poker machines that day, led to the day being named as Kevin Rudd Thursday.

On the day of the handouts, the gaming venue staff arrived at work early in the morning and were surprised to see long, long lines of pensioners outside their doors. Cashed up with their $1,400 bonus, these pensioners used their money to satisfy their addictions, rather than stimulate the economy.

REALLY? I AM GETTING THE BONUS TOO?

Convicted criminals such as murderers, rapists and drug-dealers will have received their bonus by now. Much public outrage has occurred regarding this topic, but the Rudd Government has confirmed that prison inmates who worked outside during the eligibility period, do qualify for the bonus. With the limited spending options behind bars, most of the money is expected to be spent on cigarettes and phone calls.

About 60,000 overseas based pensioners received the Christmas bonus, whilst tens of thousands more Aussie Expats are expected to receive the latest round of cash handouts. Dead people and even dogs are slated to receive a share of the funds too, clearly outlining the huge problems that lie inside the Bailout Package plan.

Clearly, any money sent to people behind bars, Australians not even living in the country, deceased people or canines will have absolutely no effect in stimulating the economy. If these oversights are anything to go by, the Rudd Government isn’t too serious about ‘rebuilding’ the nation.

But even with the flawed qualification rules in place, the cash bonus is still being paid to the wrong people. Take the example of the British born New Zealand resident who received her $1,400 cash bonus when she hasn’t even lived in Australia since 1969. She is just one of a number of people who didn’t qualify for the bonus, but for some unknown reason has had the money deposited into her account.

WE JUST WANTED TO THROW MONEY AWAY

When we consider the failure of Kevin Rudd to outline how the cash bonuses must be spent, it is reasonable to come to the conclusion that the whole ‘nation building’ exercise is just one large PR campaign. Under questioning from the media, Mr. Rudd has confirmed that he does not mind how individuals spend their money.

Like America, the Australian Government seems to have randomly selected a large number and thrown that amount of money around under the false guise of stimulating the economy. Responding to questions on how America decided how much money was needed to stimulate their economy; a US Treasury Spokeswoman declared “It’s not based on any particular data point, we just wanted to choose a really large number.”

There is a severe lack of data showing that the cash bonuses had any positive impact on the economy. In fact, all reports suggest the contrary, with much of the bonus money being used to stimulate other international economies, and casinos and liquor stores being the main beneficiaries locally.

By ignoring economists’ suggestions of better ways to stimulate the economy than cash injections, and failing to provide safeguards against the cash bonuses being wasted, the Australian Government has epically failed with its ‘Nation Building’ plan.

SWINE FLU PANIC

At present, widespread panic is circulating over the globe, as the latest threat to our lives has appeared on the map in the form of the Swine Flu. The authorities have advised that the deadly virus originated in Mexico and can be transferred simply through human interaction.

Their have been numerous reports questioning the real threat that the Swine Flu poses, with the majority of health experts outside the W.H.O. saying that the Swine Flu threat has been highly exaggerated. Death tolls have been overstated, with the original hundreds of deaths reported now being scaled back to just 18.

The fact remains that up to 36,000 Americans die from the normal flu every year, and the number of deaths from the Swine Flu is miniscule in proportion. The severity of the ‘outbreak’ has been highly overstated by the W.H.O. in conjunction with the media and vaccine manufacturers.

TRAVEL DOWNTURN

Regardless of whether this event has been manufactured by the Authorities, it is definitely having an economic impact, as the fear stricken public abstain from their normal travel routines.

The industry hardest hit by the Swine Flu scare is the travel industry. The beaches of Mexico are normally scattered with tourists, as it is a cheap popular destination for US holidayers. But the beaches are now completely deserted, and even the tourists that want to travel to areas in Mexico unaffected by the outbreak are being sent home.

If the airline industry wasn’t already in crisis, the latest events are sure to tip it over the edge. This decade has been a massive struggle for many airlines just to stay in the air, let alone turn a profit. They have been affected by September 11, SARS, Bird Flu and the fuel crisis, and a downturn in revenue caused by a fall in passenger numbers may be the last straw for many airlines globally.

The lack of passengers is just one issue facing the airlines, as they are also experiencing problems from within. In France, baggage handling staff are now refusing to unload baggage from planes arriving from Mexico and Spain, citing health concerns. If these strikes flow onto other staff such as ticket handlers and cabin crew, it could be a major disaster.

With consumers removing their spending dollars from the travel industry, a large number of groups are affected. Hotels are normally one of the main beneficiaries of travelling expenditure, as are many of the other transport operators such as trains, buses and tourist coaches. The retail sector will also suffer, as clothes, food and alcohol are common purchases by tourists.

QUARANTINED

Employers become affected when their staff are quarantined. In addition, there are many staff in varying areas of the globe who are refusing to go to work, compounding the headaches for company management as they attempt to keep the ship afloat with a minimal workforce.

Then there are the individuals who are quarantined, often without cause, and are kept from their employment and providing for their families. An outrageous example occurred in Hong Kong recently, where policemen donning surgical masks quarantined a major hotel containing approximately 200 guests and 100 hotel staff. In what appears to be an overreaction after their SARS experience, the building is currently cordoned off with blue and white tape, with nobody being allowed to leave for the next seven days.

SOMEBODY IS SMILING

Although not everyone will be crying foul at being financially affected. The sale of surgical masks has skyrocketed, with many retailers reporting that they are unable to keep up with demand. The other main beneficiary of the Swine Flu panic is the Pharmaceutical companies, who stand to rake in millions from the sale of vaccines.

The Australian government has admitted that much of its present anti-flu stockpiles are out of date, and the 1.9 million Tamiflu vials will have to be replaced. Other countries are also planning to follow suit, by purchasing large amounts of the Tamiflu vaccine, which coincidentally was the same vaccine used to combat the Bird Flu.

The present situation brings back memories of the 1976 Swine Flu fiasco, when the US Government used the death of a single soldier at Fort Dix as a pretext to introduce a nationwide vaccination program. 30 people died from these vaccinations and scores more suffered permanent physical damage, including developing Guillain-Barre Syndrome.

If you are wondering what the end result of the last Swine Flu was, you may be shocked to hear it never eventuated. The current day US equivalent of $500 Million was spent to combat the outbreak, so somebody obviously made their fortune. Once again history will repeat itself, with the Pharmaceutical companies standing to reap massive profits, and little thought being given to the groups standing to suffer financially.