RBA Reveals Wealth Theft Plan

RBA Reveals Wealth Theft Plan

Let’s take a trip back in time.

All the way back to 2016…when Glenn Stevens was governor of the Reserve Bank of Australia and he was about to step down from his seat.

His parting gift to Australia was reducing the cash rate to 1.50%.

A month later, then deputy governor Philip Lowe became top brass of our central bank.

I remember the time well.

Simply because I began writing to subscribers of Strategic Intelligence Australia with an idea that the next move from the reserve Bank of Australia would be down, not up.

Despite jibes and ridicule from co-workers (and the odd mainstream rag), I stood my ground.

It can’t happen,’ was one comment.

The RBA wouldn’t be that irresponsible,’ said another.

Don’t be stupid,’ someone told me.

As each RBA meeting came and went — with no changes in rates — someone would remind me of my ‘forecast’.

Every time Lowe would tell the markets the next rate decision would definitely, probably, most likely, almost certainly be up, there was someone there to remind me that it was a little idiotic going against this.

I mean, Lowe seemed very sure that rates would go up.

The mainstream didn’t help this.

They chewed up every RBA statement that reinforced the idea that rates would of course go up next time…

Three years and three rate cuts later, I was right.

How’d you like them apples?

What everyone missed

Way back when I made that forecast, I was confident the RBA would lower rates to 1%.

What I didn’t expect in 2016 — or 2017 for that matter — was that the RBA would cut rates below this.

In fact, it wasn’t until mid-2018 that I thought below 1% was a possibility.

Still, even as I was toying with the idea of rates below 1%, most of the mainstream were unwavering in their support for rates moving up.

And why wouldn’t they be?

Lowe had said six times in two years that the next rate move would be up.12

Many, many people couldn’t look past this statement.

Why is that?

Some people I spoke to took the central bank at their word. Many other analysts I know of couldn’t comprehend Australia having rates below 1.50%.

That would inflate the Aussie housing bubble further,’ was one comment.

The economy isn’t that bad,’ said someone else.

That would damage savers and self-funded retirees,’ I heard more than once.

And yes, all those thoughts are right.

It will drive up house prices…

The Aussie economy isn’t really that bad that emergency rates are warranted…

And it will completely screw savers…

The idea of rates falling below 1.50% baffled people. Many people were locked on the idea that just because it hadn’t happened before, then it then couldn’t happen.

More to the point, while the June cut was widely expected since the start of this year, the idea of three cuts in six months wasn’t. In fact, on the eve of the June rate cut this year, I’ll wager very few people were anticipating a cash rate of 0.75% five months later.

So what did most people miss?

My first answer is, too many people believe the government’s waffle about a ‘strong economy’ and the RBA feeding us fairy tales about the Aussie economy.

However, if you follow consumption data, you too would’ve expected the rate cut.

Consumption plays a crucial part in the Aussie economy.

In fact, consumption is responsible for roughly 55% of Australia’s gross domestic product (GDP).

Put another way, consumption makes up six in every 10 dollars spent in Australia, as The Conversation noted yesterday.

Meaning we are a country that buys and sells things, rather than a maker of things.

And don’t get caught up in the hype surrounding hard and soft commodities. Both mining and agriculture exports combined account for roughly 11% of Australia’s total GDP.

Hence why I shelve commodity related data and focus on consumption.

So if you’d been watching consumption data, you too would’ve been alarmed by the falling numbers.

Consumption hit a 10-year high at the start of 2016 around 59% of GDP.

By June this year, consumption had fallen to 54.5% of GDP.

Meaning the amount we consume is contributing less and less to Australia’s total growth.

And no, that didn’t mean our economy was strong. It meant the main drivers of the Aussie economy were disappearing.

That fall is significant and highlighted an alarming trend.

More to the point, if we take a look at consumption data all the way back to 1959, we can see that consumption in relation to GDP is nearing historic lows…

Australia — Consumption % of GDP

Source: CEIC Data3

This chart shows why both politicians and the RBA are keen to find ways to get everyone spending again.

Only twice has consumption fallen below 54% of total GDP in the past 30 years.

It was the falling consumption data that was the clue of which way rates were ultimately heading…

Crossing the Never Never

We’ve crossed into the Never Never.

An economy with rates below 1%. Something many said couldn’t happen.

But let’s quickly revisit the reasons why they said it couldn’t happen.

It will drive up house prices…

You bet. We are about to see the biggest credit boom driving house prices in Australian history.

The Aussie economy isn’t really that bad that emergency rates are warranted…

It’s not. Our economic growth is slowing down. And it’s going to slow further. The thing is, politicians and central banks believe they can ‘engineer’ the economy to their agenda.

And it will completely screw savers…

Who cares about them! We care about the people with enormous personal debt levels.

All of the above is true.

And I reckon we’ll be looking at a 0.25% cash rate by the end of 2020.

Sounds crazy, right? But that’s only two rate cuts from here.

Lowe has denied rates would ever hit zero. Given that he denied that rates would be cut, I’d suggest you stop taking him at his word though.

Then you have the Australian Securities Exchange practicing what a negative rate world would mean for securities traded on the ASX. Essentially they’re war gaming what is thought to be impossible today.

But before we even get to negative rates, there’s the next step in the plan from the RBA.

And that’s the desperate desire to create inflation.

As the RBA noted in the statement yesterday:

It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target.

Inflation is key here. Somehow the RBA will take steps to artificially increase prices through inflation-targeting policies.

The other outcome from the past three rate cuts…and those to come…is that is that the Aussie dollar needs to remain weak compared to other currencies.

By doing this, the RBA is about to awaken the imported inflation monster. Something that can have dire consequences for you.

And that’s something we’ll explore tomorrow.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia