Latest / Money Grows on Trees / #264 - Did The RBA Just Wreck Australians?

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#264 - Did The RBA Just Wreck Australians? · Money Grows on Trees

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The government just introduced 5% deposits. People
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can go and put a 5% deposit for a home. Dumb. All they're
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doing is creating future debt servitude for young people in the country.
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Stupid. And all that's going to do is pump up the price again because
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this whole short-term idea of trying to help mortgage holders by dropping 25 basis
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points to alleviate a couple hundred bucks a month, it's probably caused some big
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problems long-term. They should have just bloody left it. What's happening in the government
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level is they're so afraid of the word recession that they're
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pulling all the levers they can to avoid it, which includes cutting rates.
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But here's the thing. If you cut rates and inflation goes up,
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you might avoid a recession for a period of time. But if inflation gets
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entrenched, you start to whittle away the wealth of the country. We're currently
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in the greatest property bubble in the country's history in the last 130 years.
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It's obvious. I'm Lloyd James Ross, seven-figure investor and
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entrepreneur, and I've helped thousands of business owners and professionals turn
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financial stress into success. If you're stuck in old money
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habits, overwhelmed by investing, or unsure where to start, this
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is for you. I'll give you the mindset and strategies to take control,
1:04
grow your wealth, and achieve financial freedom. It's time to
1:07
make your money work for you. We
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saw the July inflation data come in, and it is coming in hot, meaning
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that's bad. What do I mean by that? Well, the Consumer Price
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Index, or CPI Index, which is the rate at which prices of goods
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and services rise on a monthly and annual basis, is
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they saw this. Since the start of the year to June, CPI,
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or inflation, was running at about 1.9%, which is right in
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the band of where the Reserve Bank wants to see inflation. However,
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Last month, they cut the rates 0.25% down
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to 3.6%. So the cash rate or the reserve rate with
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the RBA is 3.6%. And that's coming down lower,
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which is going to stifle inflation. I mean, how stupid do you have
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to be as a reserve bank to not realize that people
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are spending money already, there's full employment. you're
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immigrating a whole Canberra every single year
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into the country, what do you think's going to happen if you reduce rates?
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Of course, it's going to tick up inflation. And that's exactly what's happened.
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It's exactly what's happened. So the data to July
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has come in at 2.8%. So
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the expectations were probably around 2.1, it's 2.8, that's
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a huge pump. That's like a 40% uplift
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in inflation. So inflation rose by 40% from the
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expected numbers. Now, CPI or Consumer
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Price Index, the number they're running from, it
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covers generally housing, tobacco,
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it covers food, and those numbers, frankly,
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are actually higher. If you look at those specific three numbers of
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inflation, food is like 3%, housing has gone up over 3%, and
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tobacco is 6.5%. So Australians, yeah, we
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like to eat, we like to have shelter and we like to smoke. So
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you think about that. So the number's probably more like 3.1%, which
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is unbelievable. So that's almost like a 50% jump in
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the inflation rate. And the reason that's happened is because the
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RBA has dropped rates when they should have left them as is. They should have
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left them. And the reason why they didn't is
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because most people in Australia have gone
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and borrowed to the hilt as much as they can to buy
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overpriced housing. Now, before you tell me it's not overpriced, let me
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tell you something. Housing is a financial asset and
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there is an episode on here. If you go click
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through, hit the subscribe button and go click through the episode we talk about with
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housing and what's happening in the housing industry. We've done lots
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of episodes on that but there's some fresh ones so go check
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it out. Housing is
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a financial asset and the reason it's a financial asset is because
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you can lease it out to a tenant and get income from it and
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you produce yield, right? So the asset can yield income
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and cash flow. And of course, because it's attached to land, over
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time with population growth and demand, the supply of land is
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static and demand, which is population growth, makes the
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price of the land go up over time, right? And so, it's
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a financial asset. And the reason I
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know it's overpriced is because if you were to go and buy a property and
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lease it out, the rental return of say
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three and a half percent, which is what the tenant pays you, three and
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a half percent of the asset value is what the rental return would be. The rent doesn't
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cover the repayments of a typical mortgage. Doesn't because
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if mortgage rates, the retail rates to say 6%, which
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they are, and you've got rental
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yields at three and a half to 4% that the
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assets not producing enough to cover the repayments of a mortgage. So
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it's prima facie overpriced. Now, if yields were
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more like five or over 5%, it
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would be fairly priced or potentially undervalued, but it's not.
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And the reason it's also not is because there's tons of signals that dictate that
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it's overpriced. There's people living in tents. The government
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just introduced, just this week, they introduced 5% deposits
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where people can go and put a 5% deposit for a home. And
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all that's gonna do is pump up the price again, because
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people are gonna be able to get in a little bit easier. Mind you, that doesn't make
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it easier for them to service the loan, which is still important, but it
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does reduce the amount of deposit required. So that's gonna pump
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up a little bit. And they brought that policy forward three months. Why?
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Because they're trying to get it to the next edge. They're trying to save the
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property market. And if you look at what the RBA did, with
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the rate cut, they are trying to save the property market,
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or they're trying to save people with these big mortgages that they should never really have
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got. But because of the policies and the immigration coming into the country,
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it's created a property bubble. And it's
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getting ridiculous now, really, frankly, but that's what's happened. And
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so you've got this situation structurally where you've got inflated housing
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because of immigration, frankly, If you pull in six
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or seven or eight thousand people a year and there's only so much housing to
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go around, and by the way, there's only 53,000, 53,000 market
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jobs, meaning non-government jobs available. So what the hell are
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700 or 600,000 people going to do when they come here when there's only
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53,000 open market jobs available and the government jobs are done? I'm pretty
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sure they're even stopping government jobs happening now because they
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had employed a lot into the sector. And Australia is
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now one of the highest employees in the public sector, in the
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government. So what are they going to do with the 550,000 other people?
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They can't all be Uber drivers, right? So you're going to have this situation where
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property is being pumped up, and it shouldn't be. And
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the reason why people are mortgaged to the Hiltons is because they have to borrow money to
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buy the houses, right? And so we've caused
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this ourselves. And of course when the RBA
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drops rates to save mortgage holders,
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because they've got a million dollars worth of debt, and every little morsel of
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cut, like 0.25 or 25 basis points, That's
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going to save them a couple hundred bucks a month. But that couple hundred bucks a month
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to a couple who's already both working, got kids in daycare, and
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is paying at their butt for petrol and gas and energy
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because of energy policy, then a little bit does count
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for them. So the RBA is considering mortgage holders when they make these cuts.
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But what they don't realize, well, they might realize, is that when you cut rates, you
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really crank up inflation. Because what you're doing then is
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you're creating more You're certainly creating more debt
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availability because people are borrowing more money. And it's also pumping up
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the price of things because you are alleviating some cash flow in
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the household budget for them to go and buy more cigarettes and buy more groceries
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and so forth. So that's how it happens. Now, why
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is this a problem? Why are you talking about this,
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Lloyd? Why is it such a catastrophic decision? And
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I put it on my stories on Instagram yesterday and a friend of mine said, what does this mean?
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Cause I put there that the RBA made a catastrophic mistake by
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cutting rates. The inflation's gone up by 40% in the
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last month from the start of the year to now it's cranked up.
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And the reason why it's an error is because if inflation gets entrenched and
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you can't get hold of it and it starts to grow, you know, 3%, 4%, 5%, if
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inflation goes up to five or more percent, which is what's happening currently in the
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UK, I believe is. that
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you start to cook the currency, obviously. And people in Australia call
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our currency the Pacific peso because the policies in
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place currently in the country are making our dollar worth a lot less.
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And that's why people are running to things like Bitcoin and so forth
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because they're trying to find something that doesn't destroy their
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gains of wealth, right? And it's also why they also want
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property too, because when you do buy property, you do
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have a hedge against inflationary pressures. But it doesn't work so good when you've
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got a massive mortgage and it's costing you more than, you know, you're
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sucking out your whole life to pay for it. This is who cares, right,
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about inflation if that's happening. But if inflation
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does get carried away, then it has
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a huge impact on the economic growth of the country. Just
9:25
quickly, if you're ready to take control of your finances but feel stuck on
9:29
where to start, I have a solution. My book, Money Bias Happiness,
9:33
simplifies investing and wealth building with practical steps to help
9:36
you achieve financial peace. Get your copy via the
9:39
link in the show notes and let's get your money working for you. Now back
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to the episode. What's happening in Australia is we're very anemic,
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like we're like a 0.5% fall
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in GDP away from having an actual technical recession.
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And by all accounts, and you'll say this in the comments no doubt too, we have been
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in a GDP per capita recession for
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seven quarters or eight quarters, so the last almost two years. And
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so we are. But what's happening in the government level is they're
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so afraid of the word recession that they're pulling all
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the levers they can to avoid it, which includes cutting rates. But
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here's the thing, if you cut rates, And
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inflation goes up. You might avoid a
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recession for a period of time, but if inflation gets entrenched, you
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start to whittle away the wealth of the country and it starts to get extremely difficult
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to grow. And you can go into what's called stagflation. And
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stagflation occurs when you start to drop rates to stoke growth. But
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it has the opposite effect because of inflation and all of a sudden you get negative
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growth. And all of a sudden you cannot pull the lever of dropping
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rates to restoke the economy. You can't do it
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anymore. And you get stagflation. And stagflation is where we go into a bit of a
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death spiral towards negative growth for consecutive quarters.
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And that scares the government. And so it should. Because
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it's what happened in the 1970s with the oil embargo, where the
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price of oil went way up. And oil is
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in everything. It's in our phones. It's in everything, right?
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Plastics. So when price of oil goes up, everything goes up. So we had
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this massive spike in inflation. And of course, the
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currency was just getting burnt. And if you go into hyperinflation,
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you can destroy the currency and it can absolutely turn the
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country into an absolute economic
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tornado. And it's what happened in Germany before World War II. It's
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happened in many other countries. And they've had to,
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I mean, the economy's just basically been destroyed and job losses
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go way up, many bad things happen. So if you go and look
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at history, stagflation is not a good place to be. And so what the government
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will want to do is prevent that happening. So they'll have to actually bring
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inflation down. Here's the only way
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you can pretty much do that, is the only way to do that is to increase
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the rates, increase the cash rate, increase the reserve
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rate. So that means we're gonna, if inflation ticks up again and
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again and again, and we can't get hold of it, to actually break inflation
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and bring it down again, you have to lift rates above the rate of, way
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above the rate of inflation. So don't be surprised if
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instead of a rate cut or two that people are expecting in November, on
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the 4th of November, the RBA will have a chance to either
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keep rates the same, cut them or increase them. And they meet first Tuesday of
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every month to do that. And when they do it next
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time, don't be surprised to see no cuts. They'll probably
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keep it on hold next month. And in November, usually
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about the Melbourne Cup, on the Melbourne Cup, our big horse race here, our
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annual sporting event, they
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may even have to put it back up. And
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so this whole short-term idea of trying to help mortgage holders by dropping
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like 25 basis points to alleviate a couple hundred bucks a month, it's
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probably caused some big problems long-term. They should have just bloody left
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it. They should have just left it at 4.5% and let the
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property market swallow it. But they're too
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afraid because of the backlash, they're too
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afraid of their own properties falling in value, because property is a religion in
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this country. And heaven forbid it ever goes backwards by a
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millimeter, because then, oh my God, right? But the reality is,
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if you want a nice steady growing economy, having the odd recession is
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not a bad thing. You can't have something just go straight up. The
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only Ponzi schemes do that. Like Bernie Madoff's Ponzi scheme goes straight
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up. And you're not going to have a property market that just goes up forever. It's not
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going to happen. So we either deal with it now or we don't. And
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it looks like they're not going to. They're dropping the deposit rates to
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5%. Dumb. Dumb. All they're doing is creating future
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debt servitude for young people in the country. Stupid. It's going to prop the
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prices up again. Then they're cutting rates when they
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should increase them and keep them. So I hope that the RBA
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in the future, lifts rates back up, you have
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foreclosures, short-term pain, to
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then bring prices back down a little bit to where they're a little bit more affordable for
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people, and you have a better country. But of course, the underlying
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or the outlier to that equation, as to whether that will
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happen or not, is of course, immigration. I
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watched a wonderful talk from Pauline Hanson yesterday. Now, love it
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or hate it, I don't really care. And you're welcome to put some comments down below. to
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what you think, but I saw her do a talk yesterday and
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it was just spot on. Drop immigration to 130,000 a year, which
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sustains the birth rate and doesn't have a reducing population. A
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lot of people think that we need all these people. We don't. We get all of our wealth
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from resources in the ground. We only need 130,000 coming in to sustain growth. We
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don't need crazy number of people here. So drop
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the immigration rate down to 130k, start
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to shift the energy policy and start producing gas and nuclear projects. And
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again, all you nuclear, anti-nuclear people, pop your comments below,
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have a whinge below. I'm happy to come and talk to you about it. But you
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can't have a country that's producing all these natural resources and have
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energy problems. And then of course, leave rates a
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bit higher so we can have the recession that we need to have. to
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reset prices and help the people that are
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in this country, to help the citizens of the country, not the people just coming in randomly
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who haven't been here and built the country. So go check
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that out. I think if you go to her Twitter account or X account, you can listen
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to what she said. Now, love or hate her, what she
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says, she's the only one who's got any balls to say
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what we need to say so we can save the economy in this country. Because
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I don't know about you, but I love living in a prosperous country. I
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love it when we can afford housing. I love it when we
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have steady sustainable growth and right now we're on the precipice of not that.
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Anyway, that's why the RBA may have made a catastrophic
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mistake. I believe they did by cutting rates and don't be surprised if
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you see him on hold and then don't be surprised if you see
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him go up. So prepare for it, buckle up, start
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putting things in place now to to actually de-lever if
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you're leveraged up, to just de-leverage. No one says
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you've got to keep a flip in hand. You can rent. Again, I know
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the comments, oh my God, that's the worst thing you could say, but
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I rent and I sleep well at night. Sometimes
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it's not about keeping up with the Joneses, it's not about how big your house
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is, it's not about I'm on the property ladder, it's about are you happy and
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are you financially at peace? Most people aren't. So
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perhaps shift your objectives, shift
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your approach, start making some money moves to be financially
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at peace and not simply on the treadmill or on the rat race
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of trying to keep up with the Joneses who've got their fourth property. Because it
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doesn't look like it's going to end well from here going forward. It will
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happen. We're currently in the greatest property bubble in the country's history
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in the last 130 years. It's obvious. It's obvious. So
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just be aware if you take the 5% deposit and put in now and
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rates go up, don't be surprised if you have to then foreclose because you
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messed up. It's not a good time to be making the
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bold property acquisition is in my eyes. But again, you
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got to do what you need to do, but just be ready for what's going to happen in rates because
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they may go up and that may impact you massively. All right, that's it. Leave
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me a comment. Come fight me in the comments below or come and give
17:23
me some love. I don't mind. I reply to all the comments, right? My
17:26
buddy says, why do you reply to all the comments? It's brutal. I'm like, because I still love
17:30
everyone. They're entitled to their opinion and it makes a lot of fun, right?
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I ain't scared for a fight. So, all awesome love. And if you love,
17:37
thank you. Thank you for watching the show. And if you are watching
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Spotify, we have a video podcast on Spotify too, share this episode with
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a friend and hit the subscribe button if you want more. I can't wait to
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see the comments. What do you think about inflation going up?
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And what do you think about where the RBA should set rates? Leave
17:54
your comments below and I'll see you in the next episode. Thanks for listening to Money Grows
17:57
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