The Global Economic Crisis and Its Effect on the Australian Currency

[Tysonboss1]

1, Gold may have no fundamental use outside of jewellery however what it does have is the ability to not be used up and not to go off such as numerous other commodities.

2, As fiat currency is slowly debased to zero, while those other assets would also retain their value, they would not be suitable as backing for a new currency which would surely be needed, correct?

3, Imagine a oil or natural gas based currency where the supply is constantly being used up

4, They would however make a tremendous investment however so long as they were still in demand in an inflationary world where only the baseist of commodities could still be in demand, correct?

1, yeah, so it just sits there, ever increasing in quantity, not producing anything and the only way it can make money is by having another person coming and offering you more for it.

2, whos to say there will be another currency or that it wwould be backed by gold, What if it is replaced by a new fiat currency. Secondly, even if the new currency came in and it was backed by gold, why would I need gold, My farmland, businesses, oil fields, etc.etc would just start accepting the new currency for their goods and services.

3, it wouldn't have to be backed by oil and gas, it could just be a new fiat currency.

4, great businesses are always better investments than gold or cash over time, if you purchase them at rational prices

 

[Tysonboss1]

Currency debasement can only lead to inflation so therefore not an "if" the only "if" is will the debasement get the debt to serviceable levels or go too far and lead to hyperinflation?

Our currency being "Fiat" if you want to call it that, Is very dynamic. It can be both inflated and deflated as policy makers see fit. Deflation is seen as a bigger threat than Inflation, So policy makers generally side with monetary policy that is a little bit inflationary ie target 3%.

Currency debasement/stimulus will ensure continued economic "development", everyone will still be employed and spending money, just the inflationary effect will slowly reduce their expendible income to zero.

Not true, Our money is based on debt. And when you have massive amounts of capital slashed from the banking sector, as happened during the GFC. followed by a period where the private sector is desperately deleveraging, followed by greek euro bonds being slashed by 70%, the money supply under the fractional reserve system is at serious risk of a negative feedback cycle of deflation, Hence why governments have stepped in to try and fill the gap and stimulate activity.

Uncertainty will be replaced with complacency as "printing" becomes the norm and all appears fine

You understand that money is not actually being printed right, and the actions that are being taken are simply shuffling existing capital from short dated obligations to longer dated ones at decreased interst rates, all of which eventually expire.

The underlying value of alot of stocks would remain and the currency debasement would lead to continued rallying, so investing in solid companies would be another way to avoid inflationary effects

Yes, over time. good businesses and assets will increase in value as the currency loses value, However. If the montentary policy caused deflation prices on everything would fall, business and consumers would not be able to met debt obligations, and a negative feedback cycle of delation would push the world into depression, Hence why they are taking the actions they are.

The spending from the world's governments will maintain employment and "development" so the effects will be less noticeable but slowly inflation will steal more and more wealth

Real wealth is assets, not cash. cash is a shorterm store of value, a medium of exchange, it is not a longterm store of wealth, and it shouldn't be. Inflation does not take the value of you assets outside of cash away.

The central bankers are now preemptively racing to debase their currencies so while a large fall in the US dollar is unlikely in a short period of time, it will slowly but surely occur. The US dollar value against other currencies wont change much due to other currencies following suit in the race to debase making the inflation even less noticeable.

As I said they are racing to will gaps in the money supply caused by private sector capital destruction and deleveraging. All the actions they take, like a mortgage eventually expire and if not replace by private sector expansion or more government stimulas will again see deflationary pressure

Seems unlikely due to printing/stimulus packages, just a slow steady inflationary path to the end of fiat currencies

In disagree, there will not be an end to fiat currency, the numbers printed will just slowly get mor zeros, and when it gets to crazy, it will just be replaced with a new fiat.

 

[skating101]

Our currency being "Fiat" if you want to call it that, Is very dynamic. It can be both inflated and deflated as policy makers see fit. Deflation is seen as a bigger threat than Inflation, So policy makers generally side with monetary policy that is a little bit inflationary ie target 3%.

Ok if that was actually the real level of inflation then money in the bank at 5% would be worth more in the future than what is it now, 2% more each year in fact

Not true, Our money is based on debt. And when you have massive amounts of capital slashed from the banking sector, as happened during the GFC. followed by a period where the private sector is desperately deleveraging, followed by greek euro bonds being slashed by 70%, the money supply under the fractional reserve system is at serious risk of a negative feedback cycle of deflation, Hence why governments have stepped in to try and fill the gap and stimulate activity.

But the governments are not stimulating GDP growth they are instigating austerity (which only further hampers ability to pay down existing debt) and issuing further debt (to replace the existing debt that is being written down)

Why not just forget about debt writedowns and refinance all existing debt with incredibly low interest, no deflation.

You understand that money is not actually being printed right, and the actions that are being taken are simply shuffling existing capital from short dated obligations to longer dated ones at decreased interst rates, all of which eventually expire.

I know the money isnt being printed but for example greece gets a handout which is a loan which is used to pay existing debt obligations increasing their overall debt loading. Why not just force the debt holders to refinance all their existing debt at 0.01% interest and let greece grow its way out without issuing further debt? They would have sustainable debt to gdp ratios because the debt would be such low interest

Yes, over time. good businesses and assets will increase in value as the currency loses value, However. If the montentary policy caused deflation prices on everything would fall, business and consumers would not be able to met debt obligations, and a negative feedback cycle of delation would push the world into depression, Hence why they are taking the actions they are.

I understand the deflationary cycle and why they are trying to avoid it by issuing new debt to replace the writedowns

Real wealth is assets, not cash. cash is a shorterm store of value, a medium of exchange, it is not a longterm store of wealth, and it shouldn't be. Inflation does not take the value of you assets outside of cash away.

I didnt mean wealth in terms of assets i meant cash so they are stealing the "value" of the cash in the long term, or its "wealth"

As I said they are racing to will gaps in the money supply caused by private sector capital destruction and deleveraging. All the actions they take, like a mortgage eventually expire and if not replace by private sector expansion or more government stimulas will again see deflationary pressure

But is there not a sustainable level of debt at a particular interest rate that will not hamper a countries ability to grow GDP?

In disagree, there will not be an end to fiat currency, the numbers printed will just slowly get mor zeros, and when it gets to crazy, it will just be replaced with a new fiat.

I understand a new fiat would be issued and I also understand that gold backed currency could not return with ever increasing population so therefore forget about investing in gold why not invest in core companies that retain value (so long as deflationary events are preemptively counteracted with issuance of new debt or refinancing of existing debt to sustainable interest levels)?

 

[Glen48]

Real estate is a consumable just like a car you pay x for it and depending on the market the prices goes up or down.
Classic cars go up in price due to demand and numbers, housing is the same.

A 1980 Commodore you paid say $10 K is still worth $500 or so and stil an asset.

Yes they are all worth some thing how much is the big question and do you have a buyer at your price or theirs.
Gold is the same it is a bubble big question when will it pop and at what price.
15 yrs ago housing was starting to grow now it has popped and you need to look and move on to the next bubble.

 

[skyQuake]

Real estate is a consumable just like a car you pay x for it and depending on the market the prices goes up or down.
Classic cars go up in price due to demand and numbers, housing is the same.

A 1980 Commodore you paid say $10 K is still worth $500 or so and stil an asset.

Yes they are all worth some thing how much is the big question and do you have a buyer at your price or theirs.
Gold is the same it is a bubble big question when will it pop and at what price.
15 yrs ago housing was starting to grow now it has popped and you need to look and move on to the next bubble.

I doubt that very much. Housing doesnt just get consumed, it doesnt get used and 'thrown away'. Sure prices may fluctuate in value but not to the extent of a car (which will always almost go down).
You can keep a house and land in perpetuity with some good maintenance and renovations, which you definitely cannot do with a car.

 

[Glen48]

I doubt that very much. Housing doesnt just get consumed, it doesnt get used and 'thrown away'. Sure prices may fluctuate in value but not to the extent of a car (which will always almost go down).
You can keep a house and land in perpetuity with some good maintenance and renovations, which you definitely(CAN ) cannot do with a car.

You answered your own statement

 

[Tysonboss1]

Ok if that was actually the real level of inflation then money in the bank at 5% would be worth more in the future than what is it now, 2% more each year in fact

Not really, because you have to pay tax out of that 5% you earned, so after tax your only earning say 3.5% take 3% inflation out your left with 50c for every $100 you hold, then the 1 or 2 years of higer inflation every now and then would wipe out any real growth seen. At best high interest cash accounts hold the value of your money.

And thats OK with me, I don't believe simply holding cash in a bank account should make you rich, they way to earn real returns is to invest it back into real investments ie, Businesses, cash produceing assets etc etc, this in turn builds the real economy.

But the governments are not stimulating GDP growth they are instigating austerity (which only further hampers ability to pay down existing debt) and issuing further debt (to replace the existing debt that is being written down)

Only in the countries that have been spending to much, offcourse to get them out of a hole you got to stop them digging out the bottom, Mean while stimulas is happening in other parts of the world and a large part of the world is seeing natural organic growth.

Why not just forget about debt writedowns and refinance all existing debt with incredibly low interest, no deflation.

No doubt that is one of the options they have looked at.

I know the money isnt being printed but for example greece gets a handout which is a loan which is used to pay existing debt obligations increasing their overall debt loading. Why not just force the debt holders to refinance all their existing debt at 0.01% interest and let greece grow its way out without issuing further debt? They would have sustainable debt to gdp ratios because the debt would be such low interest

well basically they are getting a big priciple write down combined with cheaper interest rates.

I didnt mean wealth in terms of assets i meant cash so they are stealing the "value" of the cash in the long term, or its "wealth"

Think of it as a penalty for hoarding cash, cash is not supposed to be horded, the cornering of the money supply has caused economic collapse in the past, Our system threatens anyone hording large sums of our economic blood with a loss of a value.

As I said earlier i am very comfortable with this.

But is there not a sustainable level of debt at a particular interest rate that will not hamper a countries ability to grow GDP?

Yes, but that number changes over time, basically in the good years governments should be paying of their debts so that when the bad times happen they have savings and clear balance sheets from which to stimulate the economy with.

why not invest in core companies that retain value (so long as deflationary events are preemptively counteracted with issuance of new debt or refinancing of existing debt to sustainable interest levels

Thats what I do,

I hold only a small portion of my wealth in cash, I hold about 12months living expenses in cash accounts, and an emergancy cash reserve in my company and thats it.

The rest of my funds are deployed in real assets, ie, businesses, real estate, farmland all of which produce cash which I can then deploy it building further assets.

Buffet says, Cash is like oxygen, You always need it around, But you don't have to have excessive amounts. I tend to agree with him.

 

[Tysonboss1]

Real estate is a consumable .

Thats true for the actual building, ie bricks tiles fittings etc.

But not true for the land component,

The land component is an inflation hedge asset that produces nothing, but goes up and down in value and should provide some sort of hedge against inflation.

The building is as you described a consumable where the various componets slowly wear out at different speeds, ie, carpets etc 5 - 10years, some other parts of building 20 - 80years to wear out, other perhaps over 150years to wear out.

for example a real estate investment might look somthing like this,

Property total value $350,000=

land content - $200,000 ( earns nothing but holds value, may increase with population and inflation )

Building and other improvements - $150,000 ( earns a $15,000 rent p/a, 10% some of which must be reinvested to maintain building and to stay in business, parts of building that take 20 - 150 years to depreatiate will also provide a degree of inflation protection and growth)

 

[theasxgorilla]

Building and other improvements - $150,000 ( earns a $15,000 rent p/a, 10% some of which must be reinvested to maintain building and to stay in business, parts of building that take 20 - 150 years to depreatiate will also provide a degree of inflation protection and growth)

Tyson, what is your view on buildings which have an architectural quality? For example, old buildings, with desirable "character". The ones that they simply don't make like they used to.

Do these have additional effectiveness as a hedge against inflation, since there is some scarcity factor to the building, which can act as an offset to depreciation from things like building wear and tear.

 

[Tysonboss1]

Tyson, what is your view on buildings which have an architectural quality? For example, old buildings, with desirable "character". The ones that they simply don't make like they used to.

Do these have additional effectiveness as a hedge against inflation, since there is some scarcity factor to the building, which can act as an offset to depreciation from things like building wear and tear.

Yes, obviously a building that is well built and can last a couple of hundred years would have the remaining portions value rise with inflation, however fittings of shorter life will still decay in value.

I guess it can be a double edge sword though, if the building is heritage listed and not able to be knocked down it can hold the land value back,

For example in Sydney there are heritage buildings sitting on land that would be suitable for 20 level office buildings, where the land. value should be $20m, but that value can't be unlocked with the hertitage building sitting on it,

 

[Aussiejeff]

Yes, obviously a building that is well built and can last a couple of hundred years would have the remaining portions value rise with inflation, however fittings of shorter life will still decay in value.

I guess it can be a double edge sword though, if the building is heritage listed and not able to be knocked down it can hold the land value back,

For example in Sydney there are heritage buildings sitting on land that would be suitable for 20 level office buildings, where the land. value should be $20m, but that value can't be unlocked with the hertitage building sitting on it,

I'm sure the title of this thread is....

"The Global Economic Crisis and Its Effect on the Australian Currency"

All this RE guff belongs elsewhere...

 

[skating101]

Not really, because you have to pay tax out of that 5% you earned, so after tax your only earning say 3.5% take 3% inflation out your left with 50c for every $100 you hold, then the 1 or 2 years of higer inflation every now and then would wipe out any real growth seen. At best high interest cash accounts hold the value of your money.

I suspect inflation would be required to be higher than 3% in order to make existing debt loadings sustainable without significant refinancing to reduce interest rates (and thats just existing debt)

And thats OK with me, I don't believe simply holding cash in a bank account should make you rich, they way to earn real returns is to invest it back into real investments ie, Businesses, cash produceing assets etc etc, this in turn builds the real economy.

I agree with you that just holding cash shouldnt make you rich however it should at least retain its value, anything else is just theft.

Only in the countries that have been spending to much, offcourse to get them out of a hole you got to stop them digging out the bottom, Mean while stimulas is happening in other parts of the world and a large part of the world is seeing natural organic growth.

Except that even the US has a significant budget deficit and ever increasing debt burden and is making almost no effort to try and reduce this. Surely the debt loadings will only get larger (unless a government didnt actually want to get reelected.

No doubt that is one of the options they have looked at.

And from your description is the only real way to solve this.

well basically they are getting a big priciple write down combined with cheaper interest rates.

If i lent someone $1000 @ 5% interest and then they said they couldnt pay however I could either get $1000 in an indetermined amount of time @ 0.15% interest or get $300 @ 2.5% interest, which would you choose?

Think of it as a penalty for hoarding cash, cash is not supposed to be horded, the cornering of the money supply has caused economic collapse in the past, Our system threatens anyone hording large sums of our economic blood with a loss of a value.

You do understand the banks dont keep the money in a vault right? All money that gets deposited at a bank get relent out by the bank to stimulate the economy, unfortunately most of this money has just been used to over inflate australian real estate, a completely unproductive asset which does not assist the australian economy at all (unless you build houses of course).

This money could have been used to develop australia's other industries and make australia a world leader on another stage rather than property prices

As I said earlier i am very comfortable with this.

Yes, but that number changes over time, basically in the good years governments should be paying of their debts so that when the bad times happen they have savings and clear balance sheets from which to stimulate the economy with.

Except that in the good years governments dont

Thats what I do,

I hold only a small portion of my wealth in cash, I hold about 12months living expenses in cash accounts, and an emergancy cash reserve in my company and thats it.

The rest of my funds are deployed in real assets, ie, businesses, real estate, farmland all of which produce cash which I can then deploy it building further assets.

Good strategy and wouldve worked perfectly well during a credit boom environment where debt was ever expanding to push up the prices of your real estate. See previous answer regarding investment in real estate.

 

[Starcraftmazter]

Thanks for the reply, if we are in agreement that the central bankers will fight deflation with preemptive inflation then surely any credit crisis or deflationary event could be avoided and even an investment in stocks of those core companies, Coles, Woolworths, Telstra and oil miners etc would be just as profitable as gold?

Not at all, see the results of Weimar Republic and the extreme under performance of their stock market at the time during the hyper inflationary stages of it's existence relative to gold.

 

[Glen48]

How China Plans to Change the Way Gold Is Traded
By Porter Stansberry
Saturday, February 25, 2012
Today, the global price of gold is largely controlled by just five "bullion banks" in London. These banks establish the price twice a day by offering to buy or sell gold at a fixed price. The world's other markets operate largely off these prices.

Manipulating the price of gold (and thus the value of other major currencies, like the U.S. dollar) is possible by influencing those five bullion banks: Bank of Nova Scotia, Barclays Capital, Deutsche Bank, HSBC, and Societe Generale.

Whether that's happening right now or not, I can't say. But it is a matter of public record that the world's eight leading governments conspired from November 1961 until March 1968 to suppress the price of gold by using their central banks to manipulate the London bullion market. So it has happened before.

Meanwhile, the trading range of the gold price suggests that the market continues to be heavily manipulated.

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Why do I believe that?

Because as a precious metal with no yield, gold should be a fairly volatile asset – like silver and platinum are. But when you look at how many times the price of gold moves by more than 5% in a day, you find that it almost never happens.

Over the last 10 years, the price of gold has moved up or down by more than 5% on only 10 occasions. The same volatility has occurred in silver 80 times. It has happened in oil 137 times.

No explanation other than manipulation can account for gold's exceptionally low volatility. It simply doesn't trade like a free-market commodity.

As I explained yesterday, to control the market for gold, the Chinese must not only accumulate massive gold reserves (which it's doing), it must establish the world's leading exchange – and regulate it honestly.

And that's exactly what's happening…

For decades, Chinese citizens were barred from owning physical gold under penalty of imprisonment. Then in September 2009, China became the only country in the world to promote gold ownership to its citizens. The government started a major campaign to encourage all citizens to buy gold. Locals can now buy gold bars, which come in four sizes, at ANY Chinese bank in the country. If you don't think that's unusual, try buying gold at ANY bank in the United States and watch the funny look you get from the teller.

The Chinese government has also set up thousands of gold "stores" around the country… which look like jewelry stores, but instead sell bars of gold.

As Forbes recently reported at the scene of one such gold store…

The crowds surge shoulder to shoulder inside Beijing's Cai Bai store to buy 5 to 10 gram slivers of gold and jewelry of every size and shape. It's one dramatic example of the gold craze in China, which is officially and unofficially promoted by the Communist government… And it is an integral part of the pro-gold preference by the Chinese public and its government.

My friend Simon Black – who writes about geopolitical, expatriation, and wealth issues on his Sovereign Man website – also visited one of these Chinese gold stores on a recent trip, and said…

On the inside, these gold stores look like jewelry shops – armed guards, glass viewing cases, etc. But instead of diamond crusted earrings and white star sapphires, you see bars. Lots of bars. The government mints bars in sizes ranging from 5 grams (which are so tiny they're actually cute) to 1 kilogram. The prices are updated instantly – they have a Bloomberg screen that tracks the spot price… and the bars are all serialized and [offer] 0.9999 purity, the same as you would get from Switzerland. They are also certified by the gold exchange, which validates the quality.

We went into several stores and saw Chinese people buying like crazy… all with cash. The most popular denominations were 10 grams and 50 grams, as well as every piece of jewelry in sight. I'm surprised the mint shops didn't sell out [as] the inventory was flying off the shelf.

Why would the Chinese government set off a frenzy for gold?

Well, here's one thing to remember… the Chinese government doesn't pay much attention to human rights or property rights. It could demand all of its citizens' gold at any time – just like FDR did in the U.S. back in 1933.

But all of these facts are just hints about what's to come. The real story won't be unveiled until June. That's when China will open something called the Pan Asia Gold Exchange (PAGE). This is a direct competitor to the London Metals Exchange and the COMEX in New York.

The way things work right now, the futures market in London "fixes" the spot price of gold each morning and afternoon, based on trading in London and on America's COMEX market.

But both of these markets back gold contracts with only 10% of the actual metal. The new China PAGE market is expected to have a much larger gold backing and could change the way gold is traded.

As James Turk's GoldMoney site recently reported:

The potential effects cannot be underscored enough – PAGE is clearly preparing the world for a Chinese world reserve currency, and is doing this by bringing gold, and by extension silver, back into the Chinese economy.

Forbes wrote about the development…

It means the spot market in gold could be headed for China – and away from London's Metals Exchange or the Comex in New York. It also means that the Chinese currency – not dollars – will for the first time become the ruling currency used in one of the major speculative commodities of our age. All eyes will be on the influence of the gold trade in China rather than New York, London, Switzerland, or South Africa.

For several years, we've been warning about the loss of world reserve currency status for the U.S. dollar. We have worried about our currency because we understood the propensity of governments to steal from their citizens through inflation.

With roughly half of our national debt held by foreigners, we have long believed efforts to print away our obligations will prove catastrophic for America's leading international position – and most especially for the role of our dollar as the world's leading reserve currency.

But until recently, we were unsure of the exact mechanism by which the dollar would be replaced. Now, we see how it will unfold…

The Chinese will slowly hedge their exposure to the dollar by becoming the world's leading gold investors. By taking over the world's gold markets and building a huge stockpile of gold, they will be able to back their currency with the world's traditional form of money.

Once they are ready to make the yuan freely convertible, they will have created tremendous demand for their bonds and bills by making their currency the world's most reliable… and the only one backed with gold.

The impact on the dollar could be catastrophic… And every day the dollar falls, China's gold stockpile will grow more valuable (and more powerful). You can protect you and your family from this potential collapse with a handful of very simple steps… the first one being to own plenty of gold.

Good investing,

Porter Stansberry

 

[Tysonboss1]

I agree with you that just holding cash shouldnt make you rich however it should at least retain its value, anything else is just theft.

As discussed, if you put it in a high interest bearing account it will retain it's value.

Except that even the US has a significant budget deficit and ever increasing debt burden and is making almost no effort to try and reduce this. Surely the debt loadings will only get larger (unless a government didnt actually want to get reelected.

They have more tools to work with than a country like greece, they will be ok. They have encountered and solved bigger problems in the past.

And from your description is the only real way to solve this.

I am sure there are people smarter than me and you working on the problem, they will work it out

If i lent someone $1000 @ 5% interest and then they said they couldnt pay however I could either get $1000 in an indetermined amount of time @ 0.15% interest or get $300 @ 2.5% interest, which would you choose?

Well it's not quite as simple as that, if there is no chance they can pay the priciple back in a reasonable time it might be worth while taking a hair cut rather than taking a total loss is the end up defaulting.

Dropping to an ultra low interest rate and extending the term to say 50years will like wise see the market value of that $1000 bond down below $300 any way, so I take a haircut anyway and end up with less interest aswell.

You do understand the banks dont keep the money in a vault right? All money that gets deposited at a bank get relent out by the bank to stimulate the economy,

Yes I know, Thats why you don't lose as much value to inflation if you have it in the bank. so the result is this.

Bury the cash in a vault - Recieve a penalty for hoarding by loss of value by inflation

Bank It - Recieve alot of protection from inflation, and loss

Invest it well - Protect your principle from inflation, recieve income and capital growth

This money could have been used to develop australia's other industries and make australia a world leader on another stage rather than property prices

It does, Funding the development of property is a sound thing, we all need a place to live.

Also the banks have funded many economy building projects, especially the mining sector.

Except that in the good years governments dont

Australia did during the john howard years we cleared out debt and had billions in surplus.

the chinese are doing it, chile is doing it, most developing nations are doing it.

Good strategy and wouldve worked perfectly well during a credit boom environment where debt was ever expanding to push up the prices of your real estate. See previous answer regarding investment in real estate

Yes it has worked well, and still is working well, and always will work well.

 

[Tysonboss1]

I'm sure the title of this thread is....

"The Global Economic Crisis and Its Effect on the Australian Currency"

All this RE guff belongs elsewhere...

our comments have been about inflation which are not outside the scope of the threads title.

Also the dicussion which only went over 5 posts was started by questions from the OP.

 

[fatmango]

Hope this is not getting off the topic too much but as interest rates are influencing the $AUD here goes - I keep reading newspaper reports about our banks paying high interest rates overseas to borrow money on the wholesale market. Can someone please explain this to me. Aren't interest rates overseas around 0 to 0.05%? Are wholesale rates different again?

 

[Glen48]

My understanding is the USA feds are printing money and giving it to the banks to lend out at 0 to .5 % and I guess would depend on who wants the loot

Where the OZ banks are borrowing money at a higher rate and maybe this is where the feds get some return on their money.

 

[Starcraftmazter]

Hope this is not getting off the topic too much but as interest rates are influencing the $AUD here goes - I keep reading newspaper reports about our banks paying high interest rates overseas to borrow money on the wholesale market. Can someone please explain this to me. Aren't interest rates overseas around 0 to 0.05%? Are wholesale rates different again?

Our banks do not borrow money from foreign central banks. Some of them did during the dark days of the GFC panic - but that was an isolated event in the way banks get funding.

Our banks issue bonds into foreign markets (and our domestic market), and have private investors bid for them.

All in all, interest rates set by foreign central banks (or our central bank) are irrelevant, as the banks will get the money at the interest rates which these private investors are willing to lend the money to our banks at.

 

[Tysonboss1]

Our banks do not borrow money from foreign central banks. Some of them did during the dark days of the GFC panic - but that was an isolated event in the way banks get funding.

Our banks issue bonds into foreign markets (and our domestic market), and have private investors bid for them.

All in all, interest rates set by foreign central banks (or our central bank) are irrelevant, as the banks will get the money at the interest rates which these private investors are willing to lend the money to our banks at.

correct,

The funding comes from very diverse sources,

Eg,

domestic bank accounts 0.1% interest,
domestic High interest bank accounts 5.25%,
domestic Term deposits circa 5%,
domestic Bonds circa 4-5%,
Asx listed debt equites ie, cba pearls circa 7%,
Over seas money markets,
Overseas bonds

and the list does go on,

Another factor to think about, Even if they are sourcing over seas bonds the low coupon interest does not actually give a fair indication of the true cost of the capital because they will have to pay to hedge the forex risk. because they don't want to borrow $1Billion US dollars and then have the Aussie dollar collapse back to 50US cents, and have to pay back $2Billion aussie dollars.